Are You Ready For A Mini-Refi Boom?

Rates for the U.S. Treasury 10-year note are lower today than they were in the beginning of the year, which means the time is ripe to recapture loans.
Kevin Heal

The bond market has seen significant movement over the past month. Despite the predictions of the past couple of years that rates will increase at any time, rates are much lower today than in the beginning of the year. The U.S. Treasury 10-year note started 2014 at 3.00% and was expected to be somewhere around 4.00% by this time; however, it is currently at 2.00%.

Why is this important to credit unions? There is a mini-refinance boom in the making for those willing to go after it aggressively. The Washington Post last week profiled lenders already posting a spike in activity.

A drop in mortgage rates this week grabbed the attention of homeowners and lenders alike, generating a flurry of refinance activity that could translate into real savings for many borrowers. The Washington Post.

An Example

The 10-year U.S. Treasury is the standard benchmark used to price 30-year mortgage rates. Therefore, the lower the 10-year, the lower financial institutions price their 30-year fixed mortgage rates. To illustrate:

When the 10-year U.S. Treasury was at 3.00%, 30-year mortgage rates hovered around 4.50%. In this scenario, the monthly payment on a $300,000 mortgage would be $1,520.

Today the 10-year U.S. Treasury is at 2.00%, and the 30-year mortgage rates is down to 3.50%. Now, the monthly payment on that $300,000 mortgage is $1,347.

This is a savings of $173 per month.

Because this refinancing boom will most likely be temporary, credit unions should jump on the opportunity to re-capture members loans while the opportunity exists. Lending officers should not just be fielding in-bound member inquiries; they should be aggressively marketing their mortgage products to members with mortgages elsewhere.

In order to effectively position mortgage products, credit unions must understand their market competitors both those they can see on the street and those that are competing in the online space. Data from the Home Mortgage Disclosure Act (HMDA) is a great way to scope out the competition and see where communities are going for mortgage financing.

Case Study: Roanoke, VA

Callahan is heading down to Roanoke, VA, for our next quarterly Anatomy Of profile, so let’s take that as an example market. According to MortgageAnalyzer, almost 10,000 mortgages were originated in 2013 for a total of $1.56 billion. Although credit unions processed 9.5% of the applications, they actually funded 13% of the total applications a very positive ratio. However, since credit unions typically funded lower average balances, their overall volume of $99 million was just 6.4% of the total originations by dollar volume.

Of the 35 credit unions that originated a loan in Roanoke, Member One the subject of our next Anatomy Of originated a full 50% of all credit union-originated mortgages. Freedom First, Blue Eagle, and Navy Federal followed in the second, third, and fourth slots.

Member One dominated the credit union space, but it came in fifth overall behind Wells Fargo, Branch Banking & Trust, Atlantic Bay Mortgage Group, and SunTrust. Insight like this shines a light on all the competitors in a market and tells the mortgage team at Member One, or any credit union, where the community is going for loans. Armed with this information, Member One can develop ways to more effectively compete for the business.

MortgageAnalyzer also provided these additional insights about Member One:

  • Member One originates only conventional mortgages, but there is an opportunity in the VA/FHA area all four of the top competitors offer these mortgage types.
  • Almost half of Member One’s volume was in the home improvement category, whereas its top four competitors focused on first mortgages.
  • Only 9% of Member One’s originations were for purchase mortgages. By contrast, its competitors all had at least 20%. Purchase mortgages at Atlantic Bay, a broker, comprised 65% of its total.
  • Member One isn’t wasting effort it funded 100% of its approved loans. Its competitors did not have as much success.
  • Member One’s reputation is growing! Overall funding increased 178% at Member One and decreased at three of its top four competitors. Originations at the fourth one increased just 2%.

All credit unions can use HMDA data to identify missed opportunities, determine where they can recapture business, and see new entrants or virtual competitors that aren’t visible on the street corner.

Join Callahan COO Alix Patterson and industry analyst Andrew Bolton on October 28 for a discussion of national mortgage industry trends, what the recent changes mean for credit unions, and how credit unions can measure their impact in a specific market.

With contributions from Alix Patterson.

October 20, 2014

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