Conference 7.286::dcu

In NETWORK Volume 3 Number 2, Chuck Cockburn, mentions,

   'Our analysis does show, however, that many members do not
   have a relationship with DCU'

He then goes on to say, '...DCU annually loses approximately $2 million
on them.'

'Within the next few months, we will be addressing this issue.'

I would like to see some facts and figures.  I do not want DCU to become
another bank.

I do have a concern that members are not getting loans and having one of
Chucks 'relationships with DCU'.  If we find that members are going
elsewhere, should we not fix that problem, rather than force them to
quit through higher costs?

He seems to have said a mouthful by saying, 'Typically they borrow from
other institutions and maintain very small balances in DCU certificate
of deposit, money market or checking accounts.'

Yep, I would too, when DCU does not pay market rate or have better rates
on loans.  This is EASILY fixed by making the rates better and getting
more members saving and borrowing from DCU!

Simple message:

	---> FIX THE PROBLEM NOT THE SYMPTOM <---

DCU has raised its capitol ratio from 3.4% to 5.69%!  This is great
news, BUT do we go on for another year of putting net income back into
capitol OR part into capitol and part into the members?

Through judicious and smart management we can make some of the
previously mentioned members who do not have 'relationships with DCU',
create a relationship because of better rates, etc.

In one year we had an increase in capital of 2.29%!  Note that some of
this occurred because of less money being saved at DCU, from what I have
seen.  If we do this again next year we will have 7.98% in capital
ratio.  Do we have to be there next year or should we do this over a two
year period and split the difference among members and capitol ratio?

Lets be smart and do not dismiss members because they have found better
deals elsewhere.  Let's be competitive!!!

	- mark

    I doubt that the credit union is losing anything on my account, but I
    sure don't use the CU like I used to.  In the beginning, I signed up
    for EVERYTHING, sharedraft, share, IRA.  If I needed a car loan, I
    didn't even shop around, just walked into the branch at the Mill.
    
    Maybe I'm more discerning now.  I shop around for services, dump them
    if they start charging (and don't offer a way to waive the fees),
    and am willing use less convenient services if they provide value.
    
    Mark

    I think its a sign of GROSS mismanagment if the CU is losing 2 mill to
    inactive acocounts.  Perhaps we could start at the top and chop heads?
    
    I think its a smoke screen to begin 'choices' again.
    
    or, prehaps they could give a *detailed* explaination?
    I'm just a old farm boy from Vermont, but all I can see is 4-29cent
    postage stamps as cost/yr.  That is if they are stupid enough to mail 
    staments to inactive accounts.

RE: Note 301.3 by ILUVNH::BADGER

>    I think its a sign of GROSS mismanagment if the CU is losing 2 mill to
>    inactive acocounts.  Perhaps we could start at the top and chop heads?
    
>    I think its a smoke screen to begin 'choices' again.

I look at it quite simply.  I have two checking accounts: 1 for
everything and the other is my wifes.  She usually has between 300-500. 
If they start charging for it, then I will get an account at another CU. 
At the same time, I will close the other checking account and move it up
there.  Just does not make sense to have 1 account at CU A and the other
at DCU.  I will also start moving the other accounts up there.

CU A has just as good of rates and in too many cases better.  I see DCU
worrying about a 1st level number and not thinking about secondary
affects that occur.

I would not be suprised that the 2mil figure is not a 'real' 2mil and
can be made larger/smaller through 'statistcal analysis'.

I would rather see DCU convince the members that they should open a
relationship with DCU.  If DCU cannot convince its members to do so,
then maybe the problem is the way DCU is managed?

DCU is a Credit Union, not a bank!

	- mark

    
    I had the very same reaction to the brochure.  I agree; fix the problem
    not the symptom.  For sure these members are borrowing money and making
    deposits somewhere.  If they aren't doing it at the DCU, then why not?
    
    I can give you one example of my own.  My mortgage is not with the DCU
    and is at 9%.  When I saw the DCU was offering mortgages at just
    over 7% with no points, no closing costs I inquired.  I was told it was
    only for mortgages over $120K.  My mortgage is about $87K.  There was
    no offer to "talk" about it.  I think they are making a big mistake
    and it brings me to the point about the "having a relationship"
    paradigm.
    
    Is anyone else but me bothered by the subtle message in the way that
    paradigm is expressed.  It is very clearly from the standpoint of
    what I've done to establish myself with the DCU and not about what
    the DCU has done to establish itself with me!  The whole tone of the
    brochure came across to me as if those accounts in question are on
    trial somehow and have some questions to answer.  Neither that
    relationship paradigm nor the tone of the brochure leave me thinking
    that the DCU is interested in any more than making a few bucks.
    
    Again, a credit union is about serving the members not making money
    for itself.
    
    Steve
    
    

    
    Re:
    
    I suppose I could have also have asked what else they had but
    why should I have had to?  That is the point.  Just that fact
    that I called should have flashed *business opportunity* at them.  
    If they really wanted my business, the DCU should be instructing
    all their representatives to engage all inquiring callers in a
    conversation about what the DCU can do for them.  Who knows I
    might have had an application in the works right now if they had.
    
    Steve
    
    

I agree with both of the last two respondents.  We members should take an extra
step to help the DCU help us.  But the DCU needs to try harder.  I don't know if
the employees even know that they need to do that.  Maybe it hasn't filtered
down from Chuck yet.

I had a similar experience when I called to see if I could use one of the 
coupons to refinance a rental property I own.  I was told DCU sticks to the
guidelines of no more than 70% for investment property.  So now I have to call
around to find a bank that will take a risk on me.  But I shouldn't have to. 
That's what credit unions are all about.  As a member, not a customer, the other
members could carefully look over my qualifications for this refinance before
deciding, and not reject me outright using some Fannie Mae guideline.

Please remember this:

Members: Go the extra step to help the DCU help you.  If they won't, talk to    
         your elected directors.

DCU:     We are a good risk.  If you want our loan business, go the extra step
         to work with us.


Elaine

re: .8

Elaine,

I'm going to make a lot of assumptions here, any of which could be wrong.

DCU will sell most, if not all of its refi's on the secondary market (Fannie
Mae?).  As such, the mortgages are pooled together and sold as a package,
rather than individually.  A mortgage not falling within all the Fannie Mae
guidelines would not be able to be sold on the secondary market.  So, as far as
that goes, I understand DCU's position.

On the other hand, DCU apparently does retain some mortgages in house.  If they
don't have more than they want already in house, it seems to me that they
should do as you suggest, evaluate your application on your merits, and if
possible, do the refi and keep your loan in their in house portfolio.

Bob

Bob is correct in .9 - DCU *will* sell your mortgage.  They work with
several different mortgage purchasers.  When they are working a loan
that's difficult, they will often contact several different organizations
looking for a purchaser.   I've seen the paperwork on this type of
activity from my work on the Credit Appeals Committee.

DCU doesn't want a lot of mortgages on its books.  I'm not sure I totally
agree with the motivation for not carrying more on the DCU books.  It seems
to me to be totally profit-driven.  Perhaps somebody like Tanya or Lisa
can set me straight on this if I'm wrong.

./chris

    
    
    >  DCU doesn't want a lot of mortgages on its books...
    
      I,  for one think that's a wise policy...   The current mortgage
    rates are an aberration.  It wasn't that long ago that mortgages
    were running in the 10-11% range (and were up in the mid teens
    during the carter years.)  It also wasn't that long ago  that
    credit unions had to pay 7% or so on deposits in order to get money
    to lend...
    
      If DCU were to become saddled with a bunch of 30 year notes for
    $~100k each at 7%,  that could severely hamper their ability to
    pay competitive savings rates  as interest rates head up (which
    will probably happen sooner)  as well as make it tough to write
    competitive mortgageS in the 10-11% rate  if they have to "subsidize"
    all the older low yielding ones at the same time...
    
      I may be the only one to remember the Carter years,  but I clearly
    remember my folks's bank sending them letters on a regular basis
    with various offers to entice them to pay off their 6% mortgage
    earlier...  (But when CD's where paying 11%,  who would be foolish
    enough to do so?)
    
      I think it's wise for DCU to minimize the amount of low yield
    mortgages they hold.  Those notes will be Millstones around somebody's
    balance sheet once rates start to rise...
    
    
    							-al
    

    re: .-1
    
    >  I,  for one think that's a wise policy...   The current mortgage
    >rates are an aberration.  It wasn't that long ago that mortgages
    >were running in the 10-11% range (and were up in the mid teens
    >during the carter years.)  It also wasn't that long ago  that
    >credit unions had to pay 7% or so on deposits in order to get money
    >to lend...
    
    I would suggest that perhaps it was the late 70s/early-to-mid 80s that
    were the abberation.  The banks that are purchasing these mortgages
    know the risks -- that's why they're getting a few percent above T-bill
    rates, to compensate them for the risk.  Also, note that the average
    residential mortgage is held for only 5 to 7 years before it's paid off
    because the owners move.  So the long-term exposure is not really that
    long-term.
    
    The argument against DCU holding mortgages that I *would* buy is that
    the DCU is small compared to most mortgage-holding banks, so it could
    be risky to service a *lot* of mortgages.
    
    	Steve

Ignoring the fact that DCU is not serving members, I'll go with this line of
discussion.

If you read the recent rash of Board Minutes you will see that there are quite
a lot of money in mortgages that are coming in to DCU, and being sold.  With
that volume, and a credit union that exists to serve its members, couldn't DCU
hold a few mortgages of the non-salable type?

In my case, a refinance would allow me to get down to the 70% Loan-to-Value
amount sooner, and I'd be willing to refinance to something they could sell when
that time came.  Also, I'm only looking for a $74,000 mortgage, not a jumbo.

Elaine

    
    Re: .11
    
    >  If DCU were to become saddled with a bunch of 30 year notes for
    > $~100k each at 7%,  that could severely hamper their ability to
    > pay competitive savings rates  as interest rates head up (which
    > will probably happen sooner)  as well as make it tough to write
    > competitive mortgageS in the 10-11% rate  if they have to "subsidize"
    > all the older low yielding ones at the same time ...
    >
    > Those notes will be Millstones around somebody's balance sheet once
    > rates start to rise...
    
    
    Al, This is the kind of thinking that I expect to see from bankers
    and mortgage companies.  This is the *very* kind of argument that
    leaves me dissatisfied with the DCU.  The DCU should be providing
    the services that members want which don't easily fit the "appropriate
    risk" profile of banks or mortgage companies.  If the DCU will not
    do this then there is no advantage to being a member or "having a
    relationship" with the DCU.  If they don't get this point through
    their heads, then they will continue to suffer at trying to compete
    with banks and they should not be competing this way since the CU
    reason for being is to provide with banks can't or won't.
    
    My sister-in-law is a VP for a small NH bank.  She makes it quite clear
    that current regulation is putting small banks slowly but surely
    out of business.  They will be replaced by branch offices of large
    multinational banks that will *not* have any interest in getting to
    know the local customer.  You will either fit their financial profile
    or you won't get the loan.  Her bank currently loans money to customers
    that large banks wouldn't even talk to.  Why?  Because the bank has 
    been there since the 20s and the bank knows who is and is not a good
    credit risk because they all grew up together.  There is lots of money
    left on the table by big banks because they don't want to invest in
    *really* knowing their customers.  
    
    As this scenario develops further here and elsewhere, the DCU has a
    *major* opportunity to make money in a niche where the banks won't
    venture, but they have to take each case by itself and not approach
    it with a big financial institution outlook.
    
    fwiw,
    Steve
    
    

It's not even a matter of "appropriate risk".  I tried really hard to do my
home mortgage thru DCU, and finally didn't - mainly because they wouldn't start
loan processing with a verbal committment on the contract for the new house we
were buying - we got the signature on the contract a week after the verbal, but
I didn't want to delay closing an extra week - so I said thank you very much,
went to CTX Morgage (a company that sells 100% of its mortgages on the
secondary market), they started processing with just the verbal committment,
they locked me in at 7.5% (about .25-.5% lower than DCU at the time), and they
didn't require 1 non-refundable point for the lock-in, and I think they saved
me about $1000 in closing costs over what DCU gave me as an estimate (ok, so
this was mainly because they financed most of the upfront PMI charge- but that
was something they offered me as an option, DCU never discussed it as a possible
option).  So, now CTX has my business.  Oh well.

--Scott

    RE: .5 & .6
    
	The following is from DCU's V.P. of Lending, Allan Prindle.  There
	seemed to be some confusion surrounding minimum loan amounts in
	DCU's latest offering.  I hope this helps.

	-----------------------------------------------------------------

	To address your question regarding the minimum loan amount for the
	"No Points No Closing" (NPNC) program:

		1. When we sell a mortgage, the income DCU receives depends
		   on the loan amount as it is based on a percentage of loan
		   amount.  On the other hand, the closing costs that DCU
		   pays on behalf of the member for the NPNC are essentially
		   fixed.  It is for this reason that we instituted a minimum
		   loan amount.  At the time we introduced the NPNC, we
		   calculated $125,000 to be the loan amount that would allow
		   DCU to pay the closing costs and make acceptable income
		   from the sale of the loan.

		2. As we rolled out the NPNC program, our experience was that
		   the average loan amount was near $140,000 which meant that
		   we could reduce the minimum and still meet our income
		   break-even overall.  The new minimum of $100,000 was
		   established for the NPNC program.  Front-line employees were
		   notified of this change immediately for members inquiring
		   about the minimum loan amount.

		3. Unfortunately, as the NPNC product was new, the experience
		   of what loan amounts we would attract was not available 
		   to establish the minimum NPNC program loan amount.  If we
		   had put $100,000 minimum and we got an abundance of that
		   loan size, DCU would have realized insufficient income
		   to meet our program goals.

	As of yesterday (7/22/93), we have $4.6 million in mortgages in
	process that are in response to the promotional mailing.  In addition,
	213 mortgage applications have been sent out to members who responded
	to the mailing and requested an application.

	-----------------------------------------------------------------

    
    Re: .16
    
	>	3. Unfortunately, as the NPNC product was new, the experience
	>	   of what loan amounts we would attract was not available 
	>	   to establish the minimum NPNC program loan amount.  If we
	>	   had put $100,000 minimum and we got an abundance of that
	>	   loan size, DCU would have realized insufficient income
	>	   to meet our program goals.

    So the only DCU members who get a benefit from this program are the
    "high rollers".  Is this based on service to members or profit?  Does
    "realizing insufficient income to meet program goals" mean that they
    would have lost money or just not made as much as they would have
    liked?  Inquiring minds want to know.
    
    Steve
    
    

>    So the only DCU members who get a benefit from this program are the
>    "high rollers".  
    
    
I can't possibly see how you can classify a mortgage for 100K to 150K as 
high rollers.  With today's interest rates somone making 32K a year can 
qualify *easily* for a 92K mortgage.  Not that big of a step to 100K or 
even 140K (using industry standard of 28% of gross for mortgage you need to 
have income of 39.9K to qualify for a 140K loan @7% for 30 years)

Jilly definitely_not_a_high_roller_who_qualifies_for_this_program

    
    Re: .18
    
  > I can't possibly see how you can classify a mortgage for 100K to 150K as 
  > high rollers.  With today's interest rates somone making 32K a year can 
  > qualify *easily* for a 92K mortgage.  Not that big of a step to 100K or 
  > even 140K (using industry standard of 28% of gross for mortgage you need to 
  > have income of 39.9K to qualify for a 140K loan @7% for 30 years)
    
    Yes, but with today's home prices quite a number of persons, like me
    with a mortgage of $88K taken out in 1991, won't need a mortgage of 
    $100K.  Also there are those, like my wife and I, who have our own
    idea of what we can reasonably afford to pay.  There are scores of
    homes on the market here in NH repossessed from persons who
    "qualified".
    
    So I'm saying only that it meets the needs of only some DCU members
    and, in the current market, I would guess not the majority.
    
    Steve
     

>    So I'm saying only that it meets the needs of only some DCU members
>    and, in the current market, I would guess not the majority.
    
     
I guess we will have to disagree as to what the 'majority DCU' member will 
be looking for in a mortgage $$$ wise.


Jilly

That defn is certainly worth exploring.  Without going into details,
anybody want to fess up about their recent refinancings/home purchases?

We recently refinanced, and it was for less than $100K, so we wouldn't
have qualified for this program.  My gut feeling is that there are lots
of folks with refinance deals that net out to less than $100K.

./chris

    
    Re: .21 
    
    You got that right when you take into consideration that real estate
    is selling for way below what it was valued at 4 years ago.
    
    For example, in my parent's neighborhood in Ipswich, MA the homes
    were selling for $215 in 1988.  A couple of months ago one of the
    same homes sold for $150K.
    
    The house my wife and I own sold for $140K in Dunbarton, NH in 1987.
    We bought the house in 1991 for $98K and that was one of 20 or more
    houses we looked at and was the only one with an asking price over
    $100K.
    
    A house next door to my wife's aunt in Bennington, NH sold for $115K
    in 1988.  Just last month the bank that repossessed it finally sold it
    for $33K.  Yes, folks. $33K!  
    
    fwiw,
    Steve
    
    

    DCU is offering a no points, $100 off of closing costs mortgage for
    those who don't need to finance $100K.
    
    From what Phil posted it sounds like DCU would lose money if it offered
    free refinancing to everybody.  The business realities and the "Act
    like a Credit Union" need to be balanced or there won't be a credit
    union.

Well with housing prices in Colorado Springs going way up again, we are trying 
to sell our house (after refinancing 55K 18 months ago, ouch :*) so that we 
can build our own home and we project we will have a 125K mortgage.

Jilly

.23:   hear, hear!  Also note that the people who refinance large
mortgages under the no closing costs program are subsidizing the folks who
refinance $100K to $125K mortgages.  The DCU's extending this program down
to $100K when they saw that the average loan size was larger than expected
is, in my view, an example of acting like a credit union rather than a bank.

	Enjoy,
	Larry