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Vogeney found inspiration from a session he attended during the CUNA Lending Council’s 2009 annual conference. The speaker, Filene Research Institute Scholar Bob Hoel, noted that although 2009 was “the mother of all refinancing booms,” it excluded a segment of the population: consumers with relatively short-term loans (10 to 15 years) and low balances ($100,000 to $125,000) remaining on their mortgages for whom the cost of refinancing is prohibitive.
Other than the standard 1% origination fee, closing costs—title insurance, appraisals, and processing fees—don’t vary much by loan size, Vogeney explains. “Those costs, when amortized over the length of the loan, make it a more difficult decision to refinance for shorter-term, smaller loans.”
Enter Ent Federal’s “mortgage freedom” loan—a fixed-rate, 10-year mortgage up to $125,000 used to refinance a conventional first mortgage. The credit union finances up to 75% of the home’s assessed value and charges no origination or appraisal fees, or other closing costs, and doesn’t require title insurance.
It was a huge success, Vogeney reports. “April through July were four of our best months ever. We turned a loan portfolio that was declining at a rate of 12% to 15% per year to one with 12% to 15% growth. It was so successful we had to turn off the advertising. We had more loans than we could handle.”
Due to high demand, it takes eight to 10 weeks to process conventional first mortgages. So the credit union often refers members to the home equity side.
“We can close a home equity loan, including the mortgage freedom loans, in two weeks,” Vogeney says. “Members pay a little higher rate—in most cases, a quarter or three-eighths of one percent—but there’s no origination or appraisal fee. We started directing shorter-term first mortgage requests to the home equity side and we’ve had strong results.”
Success, however, has its price. The continued high demand is taking its toll on mortgage staff. “They’re in month 24 of the refinance boom, and we’re struggling with employee morale,” Vogeney says. “These employees are beat up. They’ve worked extremely hard, and they’re now my main concern, even more so than member satisfaction.”
Ent Federal bolstered its harried mortgage staff with employees from its home equity department, which wasn’t busy after the initial rush of mortgage freedom loans in the spring and early summer.
Auto lending has improved, too, due to the credit union’s “used as new financing.” Members who refinance a used vehicle from another lender get Ent Federal’s new-car loan rate.
Most of these loans are at least 12 months old, Vogeney says, which reduces the loan-to-value and, therefore, risk. “Plus, there are some defaults on new- auto loans within the first 12 months because some people buy more car than they can afford. So we’re weeding out people who have problems right off the bat.”
Ent Federal focuses on used-auto loans because it can’t compete with captive auto lenders’ below-market financing.
Vogeney finds it doesn’t take a big reduction in payment to convince members to refinance their auto loans. “The good thing about a recession—and I say this only semi-jokingly—is that you typically have a low-rate environment. If people aren’t borrowing, they’ll certainly want to refinance and take advantage of today’s lower rates. If you can refinance an auto loan and lower the payment by $25 per month, you’ll have one happy member. That’s easy to do in this rate environment.”
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