cuhrt_Czar_post_cuhrt_final_102808 by Prime Alliance

The Credit Union Housing RoundTable

November 2008

Andrew Harris, 66 FCU Carlyn Roy, OSU FCU Barry Stricklin, Tower FCU Mark Wilburn, 66 FCU Dan Green, Prime Alliance Solutions, Inc.

Re-Imagine Your Balance Sheet Post Sub Prime Housing Finance

Other papers in this year’s series:

Appoint a Housing Czar

Acknowledgements The CU Housing RoundTable is indebted to the authors of this paper, without whom this work would not be possible. Their donation of time, talent and expertise for the purpose of advancing credit union housing finance is greatly appreciated. The White Paper series is truly a collaborative effort. The RoundTable would also like to acknowledge the following individuals who attended the Third Annual Meeting. Their contributions throughout the meeting shaped the final version of this paper, especially the proposed Member Mortgage Relief Initiative.

Penny Adair Charlie Mac

Carlos Griego Sandia Laboratory FCU

Norman Okimoto Hawaiian Tel FCU

Maxine Allen ORNL FCU

Douglas Grout SELCO Community CU

Kerry Oldenburg Prime Alliance Solutions, Inc

Tracy Ashfield Prime Alliance Solutions, Inc

Gary Hails Silver State Schools CU

Denise Ouellette Oakmont Advisors, LLC

Joe Barron WesCorp

Nizar Hashlamon Prime Alliance Solutions, Inc

Fred Becker NAFCU

Betsy Henkel Pentagon FCU

Lori Pinto PA Loan Servicing, Powered By Cenlar

Brian Best Grow Financial FCU

Francois Henriquez U.S. Central FCU

Tanya Boggs Space Coast CU

Mercy Jimnez

Joseph Brancucci BECU Bruns, Greg Verity CU Shelly Calhoun IBM Southeast Employeesâ&#x20AC;&#x2122; FCU Robert Chavez Sandia Laboratory FCU Linda Clampitt C U Members Mortgage Janita Clausell ORNL FCU Kevin Collins Star One CU Bob Dorsa ACUMA

Dale Kerslake Cascade FCU Joe Kleeman Patelco CU Lorraine Lachapelle CU Members Mortgage Marcia Lightfoot Woodstone CU Robert Lund Beth Page FCU Rick Marshall MidWest Loans Steve Mase DEXMA Dawn McCarn Unitus Community CU

Paul Emanuels Valley First CU

David Miller PA Loan Servicing, Powered By Cenlar

Chip Filson Callahan & Associates

Beth Millstein Fannie Mae

Aurora Geis San Antonio FCU

Tim Mislansky Wright-Patt Credit Unions

Jamie Gray First Tech CU

Richard Mullen Coastal FCU

Daniel Green Prime Alliance Solutions, Inc

Gary Oakland BECU

Jerry Reed Alaska USA FCU John Reed CUSO Mortgage Corp Scott Richter Eli Lilly FCU Carlyn Roy OSU FCU Carol Safberg Star One CU Marla Shapiro Travis CU Hank Sigmon First Tech CU Scott Strand BECU Bill Strunk SACU Robert Tort CU National Mortgage Pete Valerioti Tropical FCU Jim Wagy Tropical Financial CU EC Williams Grow Financial FCU Larry Wilson Coastal FCU Robert Zearfoss Randolph-Brooks FCU

Appoint a Housing Czar Table of Contents

Acknowledgements............................................................................2  The CU Housing RoundTable ..............................................................4  The Housing RoundTable’s Positioning Statement ....................4  Big, Hairy, Audacious Goals ......................................................4  The Opportunity and the Need ..................................................5  Your Credit Union’s Plan ....................................................................6  Step One: Committing to Housing Finance as a Core Strategy ..6  Step Two: Understanding your Community’s Housing Needs ....7  Step Three: Positioning your Credit Union Culturally, Strategically, and Operationally................................................9  Step Four: What Strategies Could/Should Your Credit Union Pursue? .................................................................................. 14  The Housing Czar............................................................................. 18  Characteristics and Responsibilities ....................................... 18  Finding your Czar ................................................................... 19  The Annual Housing Plan ........................................................ 21  The Annual Housing Plan: A Sample Outline ........................... 22  Metrics for Judging Your Czar’s Effectiveness ......................... 24  Summary ......................................................................................... 25  Exhibit I........................................................................................... 26

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The CU Housing RoundTable The CU Housing RoundTable® was founded by BECU, Callahan and Associates and Prime Alliance Solutions, Inc., as a forum for credit unions to create and exchange strategies that make housing more attainable for more credit union members. The RoundTable is a volunteer group open to all credit unions and credit union organizations. To learn more about the CU Housing RoundTable, visit the web site at www.cuhousingroundtable.com. The Housing RoundTable’s Positioning Statement The CU Housing RoundTable (CUHRT) exists for the purpose of raising public awareness of the credit union system as a premier source of member friendly mortgage loans. The RoundTable will foster cooperation and collaboration among credit union system entities to ensure a heightened sense of public awareness and to ensure credit unions have access to timely, accurate information about housing finance policy, strategy and operations. It will identify issues and address solutions that facilitate the system's success in all aspects of housing finance. The networking capabilities of the internet plus periodic meetings will be used to create a virtual organization that is open to all credit unions and credit union organizations who wish to participate either on a long-term or ad hoc basis. The result of these efforts will be increased credit union market share, enhanced industry capability, expertise in housing finance, and recognition of the unique ability credit unions have to address the country's housing needs today and in the future due to their local presence and member focus. Big, Hairy, Audacious Goals The term ‘Big, Hairy, Audacious Goal’ or BHAG was coined by James Collins and Jerry Porras in their 1996 article entitled Building Your Company's Vision. The idea, of course, is that every organization ought to establish a goal that is, perhaps, ever so outlandishly out of reach. Thinking that good advice, the CU Housing RoundTable, during its first annual meeting in 2006, determined that a BHAG for the credit union system was in order. The Goal: Achieve 10% share of the annual U.S. Housing market by 2016. From 1996 to 2006 the industry managed to achieve just 2% each year, without much fluctuation plus or minus. Our fortunes brightened in 2007. Credit unions closed 2007 at 2.6% for the year; fourth quarter share reached 3.6%. While we’re benefitting from the crisis in the mortgage markets, the time to seize the long-term opportunity is now. What follows is another in a series of CU Housing RoundTable White Papers that strategically help credit unions do just that. This paper, ‘How to Appoint a Housing Czar’ recognizes that the execution of successful, long-term strategies often rests on the shoulders of a single, passionate, committed individual supported by an organization dedicated to the same ideals. ©2006 - 2008 CU Housing RoundTable. All Rights Reserved.

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The Opportunity and the Need Not since the Federal Credit Union Act was amended in 1978 have credit unions had a better opportunity to seize a leading position as prominent mortgage lenders. The turmoil in the mortgage and financial markets of the last two years is unprecedented. Yet the strategies we employ to capitalize on this opportunity as an industry and as individual credit unions remain undefined. The first half of 2008 brought never before seen mortgage lending activity to credit unions throughout the country. Even as the market as a whole slows, credit unions continue to reap the benefit of the sub-prime apocalypse for some very simple reasons: our industry is trusted and reliable. The general public has come to realize credit unions stand for good financial sense. Affordable, sustainable lending is at the core of this industry’s philosophy. It manifests itself in the way we help members tackle their toughest economic challenges. Credit unions stand out in another way as well. We are passionate and we believe in our purpose. Those among us who are the most successful mortgage lenders stand out, too. On staff they have someone who passionately believes their credit union must play a role in housing finance. Understanding their communities, local housing dynamics and member needs is an avocation, not merely a job. They believe it, they are passionate about the topic and, just as importantly, they get their credit unions to commit to housing finance as a core strategy. Then they execute. The CU Housing RoundTable coined the phrase ‘Housing Czar’ to refer to this individual found in successful mortgage lending credit unions. Want to seize the opportunity that lies ahead? Appointing a Housing Czar is one of the first strategies to act upon. What is a Housing Czar? What does a Housing Czar do? This paper holds the answers, starting with your credit union’s plan. It then provides a plan template before discussing, in detail, who the Housing Czar is and what role they play in your credit union. Wrapping things up, the paper provides a Housing Czar job description and finishes with some closing thoughts on next steps for individual credit unions and for the industry.

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Your Credit Union’s Plan Planning has been a part of the credit union culture for years. Think of all the hours and dollars your credit union has spent hiring facilitators, preparing materials, discussing information past, present and future, not to mention the countless meetings preparing, finalizing and executing those plans. Prepared at the macro level, and at the department level, these plans guide our actions and the service we provide to members. One of the most critical of the micro level plans, which should be macro-level in practice, believes the CU Housing RoundTable is the credit union’s plan for real estate lending. Members, many of them, take the same planful approach to homeownership. The most successful credit union mortgage lenders realize this, matching their real estate lending plans with those of their members. The most successful credit union real estate lenders have something else in common: they have a Housing Czar. While it’s true no credit union has a job description with this title, nor does anyone within the industry refer to themselves as such, a Czar is exactly what they are. Here’s the CU Housing RoundTable’s ‘description’ of the individual we are referring to. Perhaps you recognize them: An intense, caring, passionate, strategic individual who can execute yet also understands that housing is today's toughest economic challenge for most members. If you don’t recognize this person within your credit union, you do recognize the need for such an individual. Homeownership is a goal credit unions should share with their members. Housing Czars embrace this goal and make it a reality. There’s work to be done, however, before appointing a Czar. There are four steps that must be taken first. Step One: Committing to Housing Finance as a Core Strategy Housing is a core need. To purchase a home, members need financing. Credit unions have been committed to offering “core services” since the beginning of credit union time. The focus of many, though, continues to be the stalwarts of savings, checking, and auto loans. Step one: it is time for housing finance to join that core, and, perhaps, take the top spot. Commitment requires understanding. Understanding is the result of research, education, and agreement. Given that every member has a need for housing, it’s time to evaluate whether your credit union is ready to make the commitment and provide it the focus required to make it a core strategy.

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While evaluating the need for real estate lending to become a core strategy, here are some questions to consider: • • • • • • •

Do your members own homes or plan to purchase homes? Which segments of your members own homes? Are there member segments not represented in your real estate portfolio? Why? Does your ALM plan give consideration to longer term assets on your balance sheet? Do you want a balanced loan portfolio? Does your Board expect to see an annual profit? Do you want to be considered your members’ primary financial institution?

Answer yes to any of these questions? Then you’re committed to making housing finance a core strategy. The fulfillment of this mission can be supported through an internal department, an outsourced third party or a combination thereof. Commitment must come from within the organization. The Board, executives, managers, frontline and back office all must understand that your credit union is committed to real estate lending as a core strategy. More than simply ‘providing home loans’, your credit union makes it a point to understand the housing needs and challenges faced by your membership, then does something about it. ‘We Make Home Loans’ is no longer enough. ‘We Understand Homeownership’ or ‘We Make the Homeownership Dream a Reality’ may be better taglines. The entire credit union, from volunteer through front-line staff, must know that providing a total real estate lending solution not only serves a member need but adds to the bottom-line. More to the point, housing finance serves member needs. Credit unions are founded on the ideal of ‘People helping people’. There’s no better means of demonstrating this ideal than fulfilling the American Dream. Step Two: Understanding your Community’s Housing Needs Whether your community is a metropolis, rural county, a one-company town, single employer, or enjoys economic diversity, the second step is this: you have a responsibility to know your community’s housing needs. The housing market today provides a unique opportunity for credit unions. While many banks are tightening their credit programs, even shutting them down in some instances, credit unions continue to be a resource. In many regions, mortgage brokers aren’t just laying off; they are closing doors. This is our opportunity, but we must understand the market. Understanding your market includes not only knowing the competition but understanding partnerships and identifying allies. Knowing the competition is the easier step. Let’s start there. Most every market has its fair share of banks, mortgage brokers, investment counselors, housing authorities,

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Realtors® with relationships with other loan officers, title companies and other credit unions. Some of these at first blush may appear to be competitors yet might be your allies. True, some of these allies may fit the ‘strange bedfellows’ definition, yet individuals or entities that support your position or efforts, especially Realtors® and mortgage brokers, are looking for reliable lending sources, the same as your members. As the ripples from the sub-prime market implosion continue to spread, credit unions have the perfect opportunity to educate competitors and allies about their abilities to finance homes. These are not one-time meetings or lunches. This is a long-term commitment. Continuous visibility is imperative. Proving you can deliver is essential. Credit unions that have made the commitment, for instance, have turned the Realtor® channel into a significant source of monthly business, regardless of the time of year or market conditions. Credit unions must also understand their community’s real estate markets. Historically, many credit unions thought that members need to simply know mortgage loans were offered; a ‘build it and they will come’ approach. Today’s environment requires that we reach far beyond informing members. Regardless of whether the market is advancing or declining, stagnant or growing, people purchase homes. What does it mean to understand your community’s housing needs? Plenty. Following are a list of data points every credit union must consider: Identify Housing Stakeholders Local Government Local Housing Authorities Community Development Organizations State and Local Housing Finance Organizations Local Affordable Housing Advocates Real Estate Market Considerations Average Time on Market Average Price per neighborhood Characteristics, by neighborhood, of housing stock School District Characteristics Realtor® Considerations – Broker and Agent Identify the Top Producers Identify the ‘Mid-Tier’ Producers Local Economy Stay abreast of local employer developments Understand employer’s needs for employee housing Identify opportunities for first-time homebuyers

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Local and state down payment assistance programs Financial education Builder and developer incentives Seller incentives Foreclosure prevention programs Referral opportunities In addition to evaluating median and average home prices, you must evaluate your members’ ability to purchase homes within their communities. This includes evaluating your membership for age, income, and employment demographic information. This would include identifying regions of affordability that may match specific segments of your membership. Step Three: Positioning your Credit Union Culturally, Strategically, and Operationally Once you decide that housing finance is a core strategy, resources must be appropriately dedicated to enable ongoing growth and success. This goes beyond the appointment of a “Housing Czar” as a Czar will only be as successful as the organization behind them. Culturally Leadership sets the tone. Whether your competitive strategy is price, service, convenience, education, or innovation, providing mortgage loans will enhance your competitive advantage. Messaging from executives and managers must consistently support the integration of real estate in every strategic discussion. The message must be clear, consistent and constant. Credit unions that embrace housing finance unconsciously include the role and expectations for real estate lending in strategy and ALM discussions. Housing finance needs to be as core to the member experience as an auto loan. Every staff member must understand that housing finance is important. Staff with member contact must be able to identify member cues that lead to the promotion of home loans. It is often a teller who has the most consistent interaction with members. While they do not need to know how to answer intricate questions about obtaining a mortgage loan, they must be able to promote your housing finance initiative with convincing passion and faith that member needs will be met. Member service staff, those that open accounts and loans, must believe in the importance of housing finance. Opening memberships is the only opportunity to make a first impression. For some members this is their opportunity to remember that the credit union is a resource for housing finance needs. For others, it may happen as part of a conversation about refinancing an auto loan. Regardless, member service staff must support and passionately believe in housing finance as a core and essential product. They must also have the tools, training and job aides that will equip them to be confident in their information delivery and gathering.

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Regardless of asset size and internal resources, credit union marketing must reflect the agenda of housing finance as a core strategy. Marketing intelligence says it is easier to get your current members to hear, but every credit union must inform their community as well. This is no easy task. Just as establishing the ‘strange bedfellow’ relationships mentioned previously, convincing members and your community that your credit union is in the housing finance business takes a multi-layered strategy applied consistently over a considerable period of time. Layering the strategy begins with awareness advertising. The Housing RoundTable refers to this type of advertising as ‘unknown / unknown’ marketing in that we don’t know who we are marketing to, nor do we understand their needs. An example is bill board advertising. Unknown / unknown marketing fulfills the credit union’s broad need to deliver its message. It is often difficult to measure the return on this advertising investment, as results are difficult to track. Yet without beginning here, members and non-members alike will likely be much less open to the credit union’s message. Known / Unknown marketing is a more targeted activity. In this instance we are marketing to our members through statement stuffers, newsletter articles and like means, yet we do not fully understand their needs. Not every member that reads the newsletter, for instance, is in the market to buy or refinance a home. Again, result tracking is difficult with this form of marketing, though it is necessary in that it reminds members of the ways in which their credit union can assist them. The final form is ‘Known / Known’ marketing. In this case we know exactly which members to whom we’re delivering our message and we know exactly what they want. It is also highly possible with Known / Known marketing to predict when members will be receptive to the particular message being delivered. This form of highly targeted marketing must become de rigueur if credit unions are to become their members’ housing finance provider of choice. Awareness marketing in all its forms, along with the highly targeted marketing vehicles that are now available, must be supported by other layers of marketing and public relations. Credit unions, at this moment in time, have a rare opportunity to position themselves as the local housing and mortgage experts. Fallout from the sub-prime Olympics is in the news daily. Local media constantly searches for subject matter experts, especially on topics that are lately in the news. Position your credit union as that expert with all local media outlets. This is a long-term positioning strategy that’s relatively easy to implement. Working with local housing stakeholders, as described in the previous section, is another of the layering strategies that positions your credit union

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over the long-term as a trusted lender, an authority on housing and an expert on mortgage finance. This, too, takes a long-term commitment, the results of which won’t be immediately apparent. Three years from now, however, your credit union will occupy a much different, more positive position in local housing finance. The ‘top down’ message matters. The culture of housing finance starts with the Board and Senior Management regardless of “whom” the Czar is or “where” they are located in the hierarchy. Strategically Whether you have a primary strategic driver or strategies to fulfill a vision/mission, housing finance is a core contributor. Goals and tactics must include real estate lending. While it appears elementary, annual and long-term goals for growth must be identified. This isn’t limited to dollars booked and numbers of loans. It must include return to the bottom-line, depth of member relationship, realized cross sales, and community awareness. Realistically, few other applications require the depth of information that must be completed on a secondary market loan application. Set a BHAG. Can you own 10% of your community? What would it take? What would be your return in terms of new members, increased depth of relationship, and bottom-line? Operationally Operationally mortgage lending is unlike consumer lending. Or it can be. Consumer lending is traditionally an in-house operation. Mortgage lending may be a completely in-house operation, it may be completely outsourced or it may be something in between. There is no one correct model, hence the myriad of possibilities. For the sake of clarity, we’ll divide mortgage banking operations into two sections: origination and servicing. In mortgage banking parlance, the typical origination options1 are defined as follows: • In-house. In-house mortgage operations are exactly that. All mortgage banking functions are performed by credit union staff, from

Origination is a misnomer. In this context the term is being used to define the loan process from the point of origination through delivery into the secondary market or placement in the credit unionʼs portfolio.

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•

the point of origination through closing,2 funding and delivery into the secondary market or placement of the loan into the credit union’s portfolio. In-house credit unions typically have direct relationships with the secondary markets.3 Correspondent. Correspondent credit unions handle all functions inhouse with the exception of delivery into the secondary market. For this function a correspondent bank is engaged; its connections to the broader capital markets are leveraged for improved pricing and execution. It’s important to note, loans made by correspondent credit unions may be placed in the credit union’s loan portfolio. Wholesale. Credit unions that operate under a wholesale model function like mortgage loan brokers. Functions performed in-house include taking the application, processing the loan, ordering appraisals and other services and finding an investor or lender to underwrite and fund the loan. Credit unions that originate wholesale loans may also place these loans in their portfolios under arrangements with their investors. Retail. Retail credit unions refer their members to one or more lenders for the entire process. While correspondent and wholesale lending are ‘quasi-in-house approaches’, retail mortgage lending is a full outsource solution. Loans originated in this manner may also be placed in the credit union’s portfolio.

While the above list presents four choices, none are mutually exclusive. Some in-house credit unions, for instance, may take a wholesale or even retail approach for some of the mortgage loans, either on a product or locale basis. Consequently, the variations on these themes are somewhat limitless based on the complexity of the model a credit union wishes to create. Being known as a ‘superior’ provider, however, means a consistent member experience must be one of the goals of any model. Servicing loans - - collecting payments, amortizing the debt, making tax and insurance disbursements and investor remittances - - can be handled a number of ways as well: •

•

Service Retained. In this approach, the credit union retains ownership of the servicing right and performs servicing in-house. This is desirable as the servicer of the loan has ongoing, regular contact with the member. Service Released. Using the model, which is typical of correspondent origination offerings, the ownership of the servicing right is transferred to the correspondent bank at a price at the time of loan delivery.

Many, though not all, credit unions draw their own closing documents, yet the actual closing may take place at a title or escrow company or at a law firm. 3 Typical secondary market relationships will be held with Fannie Mae, Freddie Mac, the Federal Home Loan Bank, large commercial or investment banks.

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•

Servicing Retained / Sub-servicing. Some credit unions that retain servicing rights hire third parties to perform their servicing functions. Sub-servicing is seen by many as a cost-effective means of managing a valuable asset. Contact with the member is maintained by the credit union and co-managed with the sub-servicer.

Servicing models are not mutually exclusive either, although, from a member experience standpoint, it is typically best to employ one model. A CU Housing RoundTable companion White Paper entitled, ‘Re-Imagine Your Balance Sheet’ also explores current credit union lending models, with a discussion of advantages, disadvantages and risks. This paper also presents the latest thoughts on the models and loan vehicles that may result from recent market turmoil. Education Embracing housing finance means the entire credit union must engage. Members, as they become aware of your credit union’s commitment, will be eager for information. So will your community. While it’s not reasonable to expect everyone on your team to have detailed, intricate conversations about all things mortgage, everyone must be able to convey your sense of commitment and why your credit union should be your members’ housing finance provider of choice. Initial all-staff training supplemented with continuing education should be standard operating procedure. You want members feeling comfortable and confident in their credit union. How members access information is almost as important as the information itself. Credit unions must identify how members and non-members will access information: • • • • • • • • •

Staff? Online? Phone? Third parties? What level of information will varied levels of staff be required to supply? How will third party stakeholders access information? What resources will be dedicated to member and community education? Are there third party relationships that will enhance your operations? What is your service area? Local community? Country? State? Out-of-State?

Regardless of which strategy or combination of strategies your credit union chooses, member and staff education has never been more critical.

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Education can be delivered in tandem with a third party or solely by credit union staff. Many credit unions have taken advantage of opportunities to deliver firsttime homebuyer education. As our typical membership ages, there are many younger consumers hungry for education and the opportunity to own a home. In reaching this generation, information must be accessible online as well as in person. A CU Housing RoundTable companion White Paper, entitled ‘Post-Sub-Prime Housing Finance’, addresses these topics in greater detail. Regardless of the strategies you choose, achieving ‘Two to Ten’ requires energy, enthusiasm, passion, drive and focus. You must identify a Housing Czar. Step Four: What Strategies Could/Should Your Credit Union Pursue? Prime Alliance Solutions, Inc., defined six positioning strategies4 for the credit union industry in June 2008. This list of strategies, which was shared with the top 300 mortgage lending credit unions, is not intended to be all inclusive. Their main purpose was to begin a dialogue to help credit unions capitalize on the current market opportunity over the next 18 months. The six strategies, adapted for use, are: Strategy #4: Fine-tune your Product Mix The right product mix for your members and your communities is essential. What's the right mix for the next 18 months? Back to basics. Mortgage lending, like high fashion, has gone retro. Conventional, conforming fixed rate and straight-forward adjustable rate loans are the new-old choice for one simple reason: members understand them and can affordably sustain them. Most people, with the exception of your more sophisticated borrowers, are done with the exotics. Another item for your menu is Government Loans, another of the positioning strategies. FHA loans are another ‘throwback’ product that is making a comeback. Affordability products, too, remain important. It's easy to lose sight of the fact affordable housing and affordable lending remain a significant issue for credit union members and for our country as a whole. When designing your product mix, keep in mind your portfolios are an important lending tool for this market. An astonishing 4

Taken from ʼ18 Strategies in 18 Monthsʼ published by Prime Alliance Solutions, Inc. Used with and adapted by permission. The strategies not listed here are operational in nature. The entire list can be found at www.18strategies.com.

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fact: by 2009 there will be 40% fewer mortgage brokers plying their trade, due, in part, to the fact that their sources of funds have or will all but disappear. Portfolio lenders, like credit unions, will take their place. Think simple, think affordable while fine-tuning your product mix. Strategy #7: Credit Unions to the Rescue Credit unions differ from all other lenders. There's no disputing that. We didn't participate in the sub-prime Olympics nor did we put members in harm’s way. Members were and are affected nonetheless. So are our credit unions. We can help. If you haven't done so already, it's time to establish a sub-prime rescue program. Design a program, create a set of portfolio products and identify members who need help. In some cases members will identify themselves through delinquent car, home equity or credit card loans. The origin of their difficulties may well be an inappropriate first mortgage loan. Another way of locating members in need is through highlytargeted marketing activities. These tools can tell you the where’s, when’s and how’s of every one of your home owning members’ financing arrangements, plus other helpful information. This highly targeted marketing tool has many uses beyond sub-prime rescue, yet this is a terrific way to get acquainted with these valuable tools. A note on creating sub-prime rescue products. By no means are we suggesting imprudence. A sad fact of the current crisis is there are members no one can help. Those we can, though, require a thoughtful, risk-based approach. Reserving against these loans at a higher level is also wise. Strategy #8: First-time Homebuyers First-time buyers are a 'Two-fer' strategy: credit unions that embrace this strategy get a bonus. Here's how we figure it. Credit unions everywhere are looking for consistent, reliable sources of housing financing business. First-time buyers are a market niche tailor-made for credit unions. They're looking for information, education and convenience; three things at which we excel. We're looking for long-term member relationships. Once members become homeowners, their financial service needs blossom. Consequently, it's a perfect match. We'll close their mortgage then proceed to help them with all their future needs.

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The other benefit, the second part of the 'Two-fer' strategy, is this: first-time buyers tend to be younger, in their twenties and thirties. Credit union membership, as we all know, is getting older, and as people age they tend to borrow less and save more. If your credit union has a goal of lowering the average age of its membership, then adopting a first-time buyer strategy is completely complementary. Strategy #9: Focus on Niche Markets Niche Markets are different for every credit union, and it depends on the community(ies) you serve. Affordable housing, for instance, may be a niche that meets a major membership need. Emerging market lending may fit your membership well. For an excellent example of a credit union that has executed an outstanding emerging markets strategy visit www.primealliancesolutions.com/consumers to view the Consumers Credit Union Video. Consumers focuses on the Hispanic market, and their story is remarkable. The video will take less than five minutes of your time; the best, most strategic five minutes you'll spend today. Credit unions have always been niche lenders. By another name we know niche marketing as SEG marketing or service to our sponsor groups. While the world has changed since the days of single SEGs, the concept remains the same. So does the execution. We've been exceptional at niche marketing since the 1930s. Let's show our competition how it's done. Strategy #12: Mortgage Literacy One of the hardest lessons learned from the sub-prime crisis is this: the level of mortgage literacy in this country is abysmally low. How else could otherwise intelligent people end up in inappropriate loan products they couldn't possibly afford? Credit unions were chartered to promote the responsible use of credit. While our education mission has always been important, the stakes have never been higher: people are losing their homes. Let's re-commit to member education, this time emphasizing housing finance. Members, and your communities, will thank you for it in the form of increased mortgage business. Strategy #14: Government Lending, Everyone? More experienced lenders remember Government Lending. Government Lending, FHA Lending specifically, will, by some estimates, account for as much as 30% of all lending in under 18 months. Do three things now, and do them concurrently. Get

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educated. While getting educated, start the FHA approval process. The process isn't as arduous as it once was, yet it will take some time. Don't wait; contact HUD today at www.fha.gov. And, as soon as you've done that, partner with an FHA Lender that can give you a jump on Government Lending. During Symposium, we announced that CU Members Mortgage and Prime Alliance have joined together to bring you such a quickstart program. Contact your account executive today for more information. Still not sure Government Lending is for you? Consider this: former hard-money lenders, the sub-prime guys who refuse to give up, are turning their attention to FHA Lending as one significant way to replace the business they've lost. Don't let them get the jump on you.

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The Housing Czar Characteristics and Responsibilities Page five of this paper describes the Housing Czar this way: An intense, caring, passionate, strategic individual who can execute yet also understands that housing is today's toughest economic challenge for most members. Table I outlines the characteristics of a successful Housing Czar and the responsibilities for which they are accountable. Table I Housing Czar Characteristics and Responsibilities

Characteristics

Responsibilities

Deep understanding and belief in the mission and philosophy of credit unions and how that translates to members and housing.

Create & Execute Annual Housing Plan.

Passionate about members and housing, especially first-time buyers and affordable housing.

Create & Build Realtor Relationships.

Energetic and tireless.

Create & Build Local Housing / Community Relationships.

Entrepreneurial nature, with experience in creating and building.

Design and Execute Product and Pricing Strategy.

Strategic thinker with the skills to translate strategy into action.

Develop and Execute the housing finance training plan for CU staff.

Motivational leader, team player, speaker.

Develop and Execute the housing finance education for members.

Proven leadership abilities in housing finance or a related field.

Integrate mortgage lending into the overall culture and operation of the credit union.

Completely self-motivating and comfortable working in areas previously unchartered by the credit union.

Drive cultural change at the credit union.

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Your Housing Czar will be charting a new course for your credit union, and, to some extent, for the industry as a whole. The individual who takes on this responsibility must be comfortable with the uncertain, able to create out of nothing or very little, strategies, relationships, culture and plans that result in more members achieving homeownership more affordably. For the right person, this is a dream job. Your Czar probably has an entrepreneurial spirit or background. Ideally they’ve created successful businesses or business plans in the past. The ability to lead and motivate people - - credit union staff, Realtors®, local housing authorities, local governments and others - - is essential for success. Housing finance, or mortgage lending, is just becoming an important credit union strategy. Their job is to ensure this becomes the strategy for membership development and credit union growth. 66 FCU has a Housing Czar, though the actual title is different. Attached as Exhibit I you’ll find this credit union’s job description for its Mortgage Development Officer. It’s been a pivotal role for the credit union and has helped transform their lending activities as well as the perception of their members and their community. Finding your Czar Reading page five’s description of the ideal Czar and their role within the credit union, it’s a safe assumption this paper is suggesting the role be filled by a paid professional staffer. While that’s a fine solution, the participants at the RoundTable’s third annual meeting had a few other, interesting ideas. Do I have any Volunteers? Could your Housing Czar come from the credit union’s volunteer ranks? This is another way we can think about the position, one that takes us back to the very roots of the credit union system. Think demographics. Many talented, successful baby boomers are retiring. Many want to spend these years and their time on meaningful pursuits, causes where they can make a difference. Helping more members achieve homeownership more affordably may be appealing to many. Where might you look? What talents might you pursue? Members need help making good housing finance decisions. We know this from the sub-prime debacle of the last several years. Professional educators may be one source of volunteer. Financial professionals may be another. With years of experience and community connections, their backgrounds could prove enormously helpful in creating local awareness of your credit union's lending capabilities. Accountants, Realtors®, Builders and Advertising, Marketing and Public Relations professionals are also good choices. The most important characteristic, however, is passion for the purpose. Whether volunteer or paid staff, an intense desire to help members achieve the American Dream is essential.

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A variation on the volunteer theme could be a paid staffer as Czar, with the responsibility of building and deploying a corp of volunteer Czars. Drawing on multiple volunteers with a myriad of talents can only improve your reach and your member and community awareness. As a secondary benefit, we increase our volunteer corp, one of the original strengths of the credit union movement. At our peak in the 1970s credit unions had an estimated 250,000 volunteers; today, as a result of consolidation, that number is probably less than 100,000. The more people we have nationwide that philosophically understand credit unions, the stronger we'll be politically, regulatorily, and financially. How Many Czars are Enough? Another safe assumption: this paper gives the impression the Czar is a single individual. Thinking differently, like having volunteer Czars, having multiple Czars may also be viable. One, perhaps, could focus their efforts internally, ensuring the member experience is always the best it can be. This Czar might also be responsible for ever-increasing lending efficiencies. Lowering the cost of operations potentially lowers the cost of homeownership for members, which improves the experience. A second Czar might focus externally, on community housing agencies, local governments, Realtors®, builders, financial planners and others who influence member financing decisions. Both can be full-time jobs; both draw on different skill sets. Strong operationally-minded professionals make for good internal Czars. Marketing, sales, advertising and public relations experts will welcome an external challenge. Both professionals, in this context, must be strategic thinkers who also have the ability to execute and work together. Two Czars who are unable to function as a co-equal team member will be worse than no Czar at all. How about a Czar Share? It may prove impractical for every credit union to have a Czar of their own. That shouldn’t be a barrier, however. Consider having one Czar – paid professional or volunteer – shared by multiple credit unions. We are, after all, the only truly cooperative financial institutions in the nation, and we’ve proven time and again that we’re best when we work together. One Czar serving a community of credit unions could certainly have the internal and external impact this Paper contemplates.

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The Annual Housing Plan The Housing RoundTable’s ‘Two to Ten’ White Paper put forth the idea that credit unions should think ‘Housing Finance’ rather than ‘Mortgage Lending’. The reasoning, represented here, is an important preface to creating an Annual Housing Plan: A word about the terms ‘housing finance’ and ‘mortgage lending’. This white paper replaces ‘mortgage lending’ with ‘housing finance’ almost completely. The reason is this: members think of housing first, financing the house second. No one wakes up in the morning thinking they’ll go get a mortgage. They do dream of houses on the other hand. Credit unions need to become a part of every member’s housing dream. Thinking about housing—as opposed to lending—changes mindset and strategy. Credit union staff, like many lenders, tend to think first of the mortgage process with little if any thought given to the home itself. Mortgage lending has traditionally been a lendercentric process. We must think instead of the member experience, from their perspective. A mortgage is a means to an end rather than an end itself. Changing terminology to focus on housing finance helps us think about the member experience. Strategy changes, too, when housing comes first to mind. There is no mortgage loan until there is a home to finance. One of the reasons our industry’s share of the annual housing finance market may be so low is that we think only of the mortgage. Mortgage brokers, with a market share of 30% to 40% annually, regularly partner and participate with the real estate community: builders and Realtors®. They know where the transaction begins, which is often why they become the lender of choice.5 Another way to think about it is this: the mortgage is but one step on the way to homeownership, a step that often does not come first. First steps typically include shopping for neighborhoods and homes, increasingly on-line and engaging a Realtor®. Financing comes later. The Annual Housing Plan and the Housing Czar must address making your credit union highly visible early in the process. Can your members, for instance, shop for a home or neighborhoods from your credit union’s website? Does your credit union have relationships with Realtors® where two-way referrals are standard operating procedure?

Excerpted from ʻTwo to Tenʼ, the CU Housing RoundTableʼs 2007 paper on growing industry market share to ten percent annually within a decade.

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The Annual Housing Plan: A Sample Outline I.

The A. B. C. D.

Housing Climate in our Communities General Description The Types and Costs of Housing Opportunities Challenges

II.

Adapting the Credit Union’s Culture A. Total Commitment - Front-line to Board B. CU Staff Education C. Member Awareness 1. Marketing 2. Education a) First-time Homebuyer b) Mortgage Literacy

III. Key A. B. C. D. E.

Housing Relationships Local Governments Local Housing Authorities State Housing Authorities Local Community Groups Local Churches & Places of Worship

IV.

Key A. B. C.

Member Influencer Relationships Realtors® Builders Others 1. Estate Planners 2. Accountants

Key A. B. C.

Member Segments First-Time Homebuyers Emerging Markets Niche Markets

VI.

Sources of Business A. Employer Groups B. Community

VII. Marketing A. Awareness B. Highly-Targeted C. 1:1 1. Local Events 2. Employer Groups

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VIII. Production Targets A. Setting your Market Share Goal B. By Source of Business C. By Channel of Business D. By Influencer IX.

Originating Loans A. Establishing your credit union’s origination model B. Defining the Member Experience C. Defining the Lending Process D. Establishing Service Levels E. Mortgage Programs, Products and Pricing F. Channels of Business: 1. On-Line / Self-service 2. Member Assisted a) Face to Face - Branch or in CU b) Face to Face - Member’s location of choice c) Phone d) Realtor® e) Builder 3. Mortgage Broker 4. Other Credit Unions

Secondary Marketing

XI.

Loan Servicing

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Metrics for Judging Your Czar’s Effectiveness RoundTable participants pondered this question. How will a credit union know if their Housing Czar initiative is producing the intended outcomes? They came up with both Objective and Subjective criteria, as Table II illustrates: Table II Criteria for Judging Your Housing Czar’s Effectiveness

• • • •

• •

• • •

Objective Criteria Increase in market share and/or penetration Mortgage lending profitability Increase in cross-sold relationships Increase in originations by non-mortgage departments and branches Change in product mix and portfolio balance Delinquency and Foreclosure Ratios

• • •

Subjective Criteria Community awareness and involvement Member awareness Employee knowledgebase

•

Member satisfaction and service

•

Enhanced / improved policies and procedures Is the Czar your local community’s sought after housing finance expert?

•

Realtor and Affinity Relationships Refinance and Purchase Ratios Other Operational Measurements

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Summary Success in housing finance requires commitment, focus and energy. It’s also critically important for our credit unions to thrive in the years ahead. Make someone in your credit union accountable and responsible for this important objective. What they’re called is irrelevant; that they’re on your staff and positioning your credit union to be your members’ housing finance provider of choice it essential. Appoint a Czar today. Let us know of your progress!

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Exhibit I

Sample Housing Czar Job Description

66 Federal Credit Union Job Description

Position: Mortgage Development Officer Reports to: VP, Mortgage Lending

Department: Mortgage Lending FLSA Status: Exempt

The primary purpose of this position is to assist the Credit Union in fulfilling our Core Purpose To Serve Our Members’ Interests. To achieve this purpose the position must deliver high quality service to both internal and external members as defined by our Service Promises. A key component of this service is to identify the financial needs of the members and effectively suggest an appropriate Credit Union solution. This position assists Credit Union members with mortgage loan products and proactively solicits mortgage business from realtors, relocation specialists, key SEGs and members. Principal Duties and Responsibilities: 1.

Deliver high quality consistent service to both internal and external members that fulfills our Service Promises. Respectful • I promise to treat you with the highest standards of respect and professionalism. Accurate • I promise to be accurate and ensure the security of your financial information. Resourceful • I promise to make it easy for you to do business with us. Attentive • I promise to identify your needs and suggest a solution that will improve your financial life. Responsive • I promise to respond to your requests in a timely manner. Appreciative • I promise to show you appreciation for allowing me to serve you.

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Contribute to the Credit Unionâ&#x20AC;&#x2122;s primary function of providing financial services to members and participate in building, sustaining, and enhancing effective relationships with members and co-employees through superior member service and team work.

Develop relationships in order to determine member needs accurately. Refer and sell appropriate Credit Union products and services maintaining timely knowledge of Credit Union products and services.

Pursue opportunities for professional growth and knowledge through training, education, and self-study.

Actively listen and respond to member inquiries, suggestions, requests, and concerns.

Recommend mortgage loan products to members and take applications.

Proactively elevate mortgage business volume in the Bartlesville market by building rapport with key community leaders and real estate professionals; by employing systems for follow-up and process management; and by serving members in a manner that prompts them to promote and repeat business.

Aggressively increase the volume of relocation business by ensuring all sponsor-company requirements are met; by building rapport with key corporate and real estate professionals; by employing systems for follow-up and process management; and by serving members in a manner that prompts them to promote and repeat business.

Assign new application files to a Mortgage Loan Officer.

10.

Successfully complete all applicable compliance training and testing.

Other Responsibilities: 1.

Work with VP, Mortgage Lending to identify trends, product enhancements and process improvements in order to capture a greater share of the business.

Work with departmental personnel to ensure mortgage applications generated through business development activities are processed and closed effectively

Perform other duties and responsibilities as assigned.

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Applicable Skills: 1.

Communication and interpersonal skills to effectively work with members and co-employees.

Ability to solve practical problems and deal with variables in situations where limited standardization exists.

Ability to read and interpret a variety of instructions furnished in written, oral, diagram, and schedule form.

Ability to write routine reports and correspondence.

Ability to make effective and timely decisions.

Ability to self direct with the initiative and drive necessary to activate a project from conception through completion.

Knowledge of credit union products and services.

Knowledge of computer systems necessary to perform job responsibilities.

Knowledge of mortgage lending.

10.

Ability to solicit business that results in increased volume.

Physical Demands of Essential Functions: The physical demands described here are representative of those that must be met by an employee to successfully perform the essential functions of this job. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. 1.

While performing this job, the employee is regularly required to sit for a significant period of time and perform functions that require manual dexterity.

The employee must occasionally reach above or below normal body position, stoop or bend, and carry, lift, or move objects weighing up to 10 pounds.

A normal range of hearing, vision, and speech are required to effectively work with co-employees and members.

Revision: 10/4/07

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