Best Practices for Stepping Up Your Mortgage Game
in Blog
By: David Frankil, NJCUL President/CEO

You would be hard-pressed to find another credit union CEO who has had as much of an impact on the industry in New Jersey as Ann South. President/CEO of Novartis Federal Credit Union, and a founder of the mortgage CUSO Symbionce Financial Solutions, LLC, Ann has over 30 years of experience in the credit union industry, including mortgage and consumer lending, operations, compliance, and auditing.

Plus she somehow found time to help create the New Jersey Credit Union Foundation, serving on its board for more than 11 years.

When we were looking to provide a series of one-day workshops to help NJCUL members get better at the entire mortgage process, there was really only one person to turn to – and Ann generously contributed her time and expertise to focus the content and pull together an all-star group of speakers.

The topic, All About Mortgages: Stepping Up Your Game, is aimed at helping those credit unions with the capability to offer mortgages (either in-house or outsourced) identify best practices for growing their program, as well as strategies for managing risk and operating efficiently. 

We caught up with Ann just before the holidays to get a preview of the workshop:

FRANKIL: I know that many credit unions in New Jersey have some sort of capability to offer mortgages, and certainly want to grow their programs. But how as an executive do you know when you are you ready to take that next step?

SOUTH: There are some essential steps required to properly prepare your credit union for success, not unlike any other major initiative. The first step is to make sure that you have buy-in from the staff, so they see the opportunity and how it can be leveraged. Staff training is paramount, to make sure that the in-house team has all the skills needed. I’d also say that identifying one point person responsible for execution is essential – nice to talk about shared responsibilities, but it is all too easy for things to fall between the cracks unless one person is in charge.

Externally, a well-thought out marketing, business development, and sales plan is a requirement to create a bigger presence and a robust pipeline. If you don’t have the right people in-house, you need to either identify new hires or outsource.

And then of course you need to execute the plan – just like with any other growth strategy.


FRANKIL: Those all sound like what a well-run credit union should already be doing. What do you need to do differently with staff?

SOUTH: I can’t emphasize enough the need to make sure your staff understands the growth strategy and has bought into it. Know in advance that change and focus on growth may make some of them feel uncomfortable, it’s the job of the CEO to lead here. If they aren’t comfortable with the solution and process, they won’t generate results. Beyond leadership, training is essential – in all aspects of the process.

To really push the growth envelope, you’ll also need an incentive compensation piece for the front-line team as well. NCUA is OK with that today, although it wasn’t so comfortable 20 years ago – and there is a persistent misconception that it is not OK today. Today, incentive compensation for front-line staff is status quo, although it does need to be standardized and monitored.


FRANKIL: Managing risk has become a major part of every credit union CEO’s job. How do you manage risk as you ramp the pipeline?

SOUTH: This is a topic we could spend hours on – and in fact we will be, at the mortgage workshop. It is so important to get this right.

You need to run various growth scenarios through the credit union’s Asset Liability Management program. In particular, understand you and your Board's tolerance for long-term assets in what is likely to be a rising interest rate environment.

Look at the S&L crisis, when we had tons of 4%, 30-year fixed mortgages – and rates went up, we had money markets paying 8-9%. I don’t need to tell anyone that you can’t pay 8-9% when you are only earning 4%. This is not just a theoretical exercise, rates can go up quickly – there is some talk of two, three or even four rate hikes next year.

So the key is to look at tolerance for 3-4% mortgages on the books in a rising rate scenario and understand what your balance sheet can accommodate. Each credit union has a different tolerance for that interest risk, but regardless, nobody wants to see their credit union slowly diminish over time.


FRANKIL: We often think of partnering in the context of capabilities, but can’t you also address the risk issue by working with a third party?

SOUTH: With regard to the balance sheet, it is critical to partner with someone that can sell on the secondary market to ameliorate the interest rate risk. Full disclosure, we do this at Symbionce for our clients.

Lots of ways this can be done, from holding some loans in portfolio to selling all of them. Some credit unions will only hold ones that don’t meet secondary market conditions. This is often the first decision made on a loan. There are tons of criteria for whether any given loan might meet secondary conditions. Perhaps the main three are credit, capacity, and loan to value ratio.

The day a member applies, a mortgage officer contacts them and discusses the application, and they can pretty much tell whether it meets secondary market conditions or might be denied. If the loan won’t meet secondary market conditions, and the credit union wants to grant it, then they have to hold it.


FRANKIL: Is there a point at which a CEO should be concerned with concentration risk?

SOUTH: That is not so much an issue with mortgages, except in the context of the Interest Rate Risk issue and ALM. You will see it in the context of member business loans, though, given their size. More typical is the macro concentration issue, which is how many mortgages do you want to hold on the books.


FRANKIL: Let me turn to another favorite topic – compliance. How can a credit union establish effective compliance processes that will scale with planned growth?

SOUTH: I don’t think anyone would argue that the documentation required today is practically unreadable, given the volume of new disclosures that have been layered on in the process over the years, especially since Dodd-Frank was enacted into law. Our regulators have not done consumers any favors.

When it comes to compliance, establishing an efficient process that documents every step is essential. If you manage the process internally, and have any significant volume, you really need a full-time person focused on compliance. If you’re working with an outsourced partner, assessing their compliance process should be an essential part of the due diligence process. Either way, regulators will hold you responsible, whether compliance is managed in-house or externally.


To learn more about any of these issues and more, please join us on Tuesday February 6, 2018, at the  “All About Mortgages: Stepping Up Your Game” one-day workshop. Topics will include:

  • Origination under your CU name or not? Holding the loans on your books (% holding, selling, etc.)
  • How to leverage risk (participate with another CU, CUSO, FHLBNY)
  • Participation Agreements
  • What you need to know about Fanny/Freddie
  • How an auditor looks at risk
  • How different levels of risk impact the balance sheet
  • How NCUA evaluates risk
  • A high level look at CECL
  • How do you monitor third party relationship service standards?
  • Developing relationships with realtors