Marrying Diversification and technology

Automating Processes Offer Credit Unions More Profitable Paths Forward

By Nathan Bossers Boston National Title

When amateur choral singers audition for solos, the ones who aren’t chosen don’t just accept defeat. Neither should credit unions that find themselves behind the competitive curve.

Instead, choral singers who want to make their marks sign up for coaching, improve their technique, and try out for other opportunities. By building smarter vocal habits, they eventually land the solo of their dreams.

With a crescendo of challenges befalling the mortgage industry, including a projected $2 trillion drop in total U.S. originations from 2021 to 2022 (at this writing), now’s the time for credit unions to practice some new techniques, too. Difficult as the market is, this is an opportunity for member-owned financial institutions to rethink all facets of their organizations, including their product mix, operational processes, and technology choices. The resulting transformation may just keep them competitive in the short term, while setting them up for longer-term growth.

Product Diversification Takes Center Stage

First, credit unions should be assessing whether their product mix is as relevant as it could be, or if diversification would empower them to compete for new borrowers, while maximizing lifetime engagement and profitability of their current membership.

Consider the following questions: Is there an opportunity to attract self-employed borrowers who might not “check the boxes” for an agency mortgage? In February 2022, close to 11% of the U.S. labor force fit this category. Offering new or additional Non-QM loans might position credit unions to penetrate this market.

What about credit unions with a large proportion of retired members? Might these individuals be feeling inflationary pressures, and have a new interest in reverse mortgages?

Are credit union leaders noticing a plethora of home improvement projects in their region, as owners wait to put their houses on the market? This could signal increased demand for second mortgages and HELOCs.

With home valuations still high (even as some prices come down), are members’ property tax assessments going through the roof, and making inflation more painful? Credit unions may want to offer property tax review/appeal services to help members prevent overpayment.

REMOVING FRICTION FROM THE PROCESS

When credit unions were flush with purchases and refis, they may not have felt as much incentive to attack the many frictions that slow down mortgage lending. But now, as lenders seek to compensate for the slowdown by selling higher volumes of less lucrative products, added efficiencies could bolster profit margins.

Indeed, 10 years’ worth of Incenter data demonstrates that shortening the time to close empowers lenders to increase both earnings and profits. But when credit unions handle title, valuations, and other time-intensive processes in the same way, year after year, they could be missing out on financial improvements.

That’s especially true if they’re introducing products such as home equity loans for the first time. These products have gotten increasingly complex, and to improve margins on them, credit unions are wellserved to handle each loan process with operational precision. There are ways to provide a “wow experience” to members while removing unnecessary costs and steps at each stage — including marketing, title, valuation, closing and post-closing.

Employing Technologies for Process Optimization

Newer technologies are making process optimization possible, starting with credit unions’ own membership database software, which can provide the foundation for smarter, more segmented marketing. This software can be particularly helpful for products like second mortgages, which should be packaged and marketed differently depending on borrowers’ level of equity, property valuations, and several other variables. The more in tune credit unions are with their borrowers, based on this data, the higher the return on their product diversification and marketing efforts is likely to be.

What about technologies to streamline lending when this marketing is successful? Consider the following examples:

AI-based instant title decision engines, which clear many titles to close within seconds. These egines can also be used for market segmentation when lenders’ own databases aren’t sufficient.

Remote/desktop appraisals, which enable the completion of a thorough, compliant appraisal inspection while eliminating drive time to/ from the appraised properties. Driving often consumes up to 50% of appraisers’ work day, limiting the number of valuation orders these professionals can complete in any given time. Technologies that empower appraiser partners to capture and upload timestamped and geographically verified images and videos, and create floor plans, are speeding up the process.

In-person electronic notarization (IPEN) and remote online notarization (RON) technologies, which are streamlining the closing and post-closing cycles, including funding the erecording of deeds while providing the borrower with a more convenient signing experience.

Credit unions can further increase their performance by customtailoring their processes and technologies, member by member and loan by loan, providing just the right amount of effort (no more, no less) at every juncture. For instance, a $500,000 HELOC might need a full title report, 1004 appraisal, and in-person wet signing. A $30,000 HELOC might merit a Legal & Vesting (L&V) report, drive-by appraisal, and an IPEN signing.

PUTTING MEMBERS FIRST

Credit unions pride themselves on providing exceptional member services. With this more chiseled approach to process optimization, their customerfirst philosophy should remain their North Star. As they evaluate new technologies, they should remember:

Don’t disrupt, improve. Never choose automation solely because of its bells and whistles.

Lenders need to be convinced that it will streamline processes, be easy to put into production, and be embraced by credit union staff and customers alike. Extend the applications for every new technological investment. For instance, the same automation used to streamline purchases can also optimize loan modifications from end to end, making life easier for members, and ensuring that the resulting mortgages continue to perform. Today’s origination downturn will reach its finale soon enough. Meanwhile, those credit unions that reengineer their product offerings, processes, and automation now will be well-positioned for the upturn. And grateful members will continue to applaud their attentive, responsive service.

Nathan Bossers is president of Boston National Title Agency, LLC, a leading independent title agency and part of the INCENTER family of companies designed to optimize mortgage industry processes and improve lenders’ and servicers’ performance. Contact Mr. Bossers at nbossers@bostonnationaltitle.com.