Many call today the best buyer’s market in decades.  With interest rates reasonably low and prices down from the housing boom’s peak, the time to purchase a home is now…as long as you can get a loan.  The Federal Reserve’s March Senior Loan Officer Opinion Survey reported that 60 percent of the institutions surveyed have tightened lending standards on prime mortgages.  So while it may be a great time to buy a house, mortgages are harder to be approved for than they were in the past. 

The major focus in the media and within the financial services industry has been the refinancing of troubled mortgages.  The often-overlooked opportunity is in the purchase market.  And credit unions are in prime position to take advantage due to their avoidance of subprime lending and the fallout plaguing banks and others. 

Tower FCU ($1.68 billion in Annapolis Junction, MD) recently developed and implemented in 2007 a strategy to capture purchase money mortgage loans.  Tower originated $406 million in real estate loans in 2007.  They have a low delinquency rate on real estate loans of 0.03 percent and a higher than average ROA of 1.33 percent. 

Barry Stricklin, Manager of Real Estate Lending, asks the question, “Do you consider purchase money mortgage loans a product or a service?”  His answer:  “If your answer is product, you need to rethink your strategy!” he responds.  Mortgage loan products are fairly similar across the board when your member is attempting to choose which institution will provide the mortgage.  However, service is what can really set an institution apart from its competitors, and credit unions have historically excelled at member service.

With the focus on service, it is important to identify who the key service providers are in a home purchase transaction.  Tower identified four key providers: the real estate agent, the mortgage lender, the settlement and title insurance company, and the internet.  Barry notes the internet because over 75 percent of home buyers utilize the internet to assist them in the search for a home. 

The other major obstacle for financial institutions to capturing new purchase mortgages is the real estate agent.  Nine out of ten homebuyers use a real estate agent, who often put buyers in touch with a financing source. 

Tower asked three questions that highlighted the importance of agents:

1. Who typically makes first contact with a prospective homebuyer?
2. Who has the most influence over the choice of a lender?
3. Who has the most influence over the choice of a settlement/escrow company?

The answer to all of these is the realtor. 

How much control does the lender have?

Tower is attempting to take control of the real estate purchase process in hopes of making significant gains in the purchase mortgage arena.  First, they are taking full advantage of the CU Realty network and website.  This real estate service, specifically for credit unions, provides member’s access to local and national Multiple Listings Services, a twenty percent rebate on real estate agent broker fees on home purchases and sales, and an approved and experienced realtor.  Tower also has their own title services company to handle settlements, and provide title insurance.  To compliment these services, the credit union has implemented marketing and operating strategies to further improve service levels.

Marketing Strategy

The key to getting a member’s home purchase mortgage is for the credit union to be the first place they call if they are considering a home purchase.  Tower has distinguished it’s purchase money mortgage loans from the market by providing enhanced service and significant savings to members. This is the idea that Tower centered their marketing strategy around.  The credit union used the following messages to help drive home purchase business:

 “Come to Tower First”

1. Gain access to the MLS, estimate the value of your current residence, along with other valuable information such as schools, crime rate, shopping, and much more through our website!

2. Use our affiliated real estate agents and save thousands with discounts on broker fees!

3. Shop with confidence –free financing consultation and credit pre-approval from a trusted provider!

4. Save money and enjoy the convenient one-stop shopping with Tower Title Services performing your settlement; stringent time frames easily met!

Positioning the mortgage program using the above messages will get the point across to the member that the credit union is the first place they should contact for their home purchasing needs.  Getting the member in the door is the first step, but keeping their business throughout the process is another important factor.

Operating Strategy

Tower’s strategy for success is that staying in contact with all parties of the purchase transaction is key.  The credit union must stay in touch with the borrowers and real estate agents both during the home search and after the contracts are processed.  Staying in touch until it’s over not only increases capture rate but even more important can help guide the member through one of the most difficult and important processes they will ever go through.

The Results

These initiatives have paid off. Not only has Tower captured more purchase money mortgages, but most important, members have benefited from the savings and enjoyed the convenient service. During 2007 Tower increased mortgage loan production by 48 percent over 2006. Household penetration on mortgage loans rose to 8.5 percent. A compelling statistic regarding the strategy is that the capture rate on a purchase mortgage loan is over 80 percent when a member uses our affiliated CU Realty service. During 2007 members using our CU Realty Service received an average rebate of $2,580. Our capture rate for Tower Title Services was over 92 percent with many members closing in 10 days or less. The real barometer of the level of service is the results of member surveys based on the “Net Promoter Score”. The average “Net Promoter Score” on mortgage loan transactions exceeded 90 percent. So far we are happy with the results. It has enabled us to help more of our members and provide an enhanced level of service with significant savings!

United Federal Credit Union, $794 million, St. Joseph MI, started a complementary budget counseling service in 2003. Judy Baker initially started working with distressed members to help prevent bankruptcy filings. Due to its initial success, the program was expanded to include those who recently lost their jobs, requested budgeting assistance, or any member or non-member experiencing financial distress.  According to Baker, “Many people don’t communicate with creditors when they are financially challenged. I tell them that this is not the answer and encourage them to contact their creditors and to utilize the counseling service.”

Publicizing the Program 

It actually started internally with credit union employees. Once the program was explained to the staff, they were excited, and took it upon themselves to spread the word. Employees started to listen and pay attention for signs that a member was financially distressed, and they would refer them to the Budget Counseling Service. News about the service has spread by word-of-mouth in the community. Many heard about it from family members and friends, but local news media also picked up on it.

 While the program gets the majority of its referrals from credit union employees, it also receives them from local financial assistance programs, churches, community organizations, local businesses, and even other financial institutions. A non-member would be encouraged to join UFCU, but credit union is primarily focused on assisting these individuals. According to Baker, “Many of these non-members ultimately joined the credit union simply because United was willing to help them during their time of need.”

 Once a member is referred to their service, Judy sends them a budget counseling packet to gather some basic information about their average monthly income, living expenses, bills, and outstanding debt. Judy is assisted by another employee who handles many of the initial calls, mails out the packets, schedules sessions, and tracks referrals. After the information is collected, a counseling appointment is scheduled. Because the credit union serves such a widely dispersed geographic area, most of the contact is facilitated through phone and email, but face-to-face appointments are scheduled if possible. Before the appointment, Judy identifies the individual’s most pressing financial needs using the information provided and uses this to frame the discussion.

Working toward a Solution

Judy works with each member to develop and enact a plan to help them become financially stable. According to Baker, “Sometimes the answer is simply cutting out unnecessary expenses, shifting resources, or providing the member with a healthy focus.” Her interaction with each individual varies widely. She is in daily contact with some, and weekly, monthly, or yearly contact with many others. There are some members that only need to come in once to get help setting a budget; there are others that she chats with on every payday to help them control their expenses on a consistent basis.

The credit union can work with members to extend certain types of loans if they meet specific criteria. If the member was recently laid off or has been unable to work due to medical reasons, UFCU can work with the member to extend the loan. They typically grant a two or three month extension and make sure that the member can feasibly afford the loan at the end of the extension period. Judy can also work with her clients to help consolidate existing loans, but she examines what caused them to fall into debt initially. If mismanagement of their personal finances was the primary cause for their distress, she will use alternate approaches before consolidation. She has found that these individuals usually need help understanding the basics of budgeting and personal finances before any further steps are taken.   

If an individual is in a situation where they have a large amount of credit card debt, Judy is not licensed to contact outside debtors. However, she will refer clients to a few specific credit counselor agencies. She identified several reputable agencies in each state where UFCU has a presence and formed relationships with them. Judy identified these agencies through contacts that she made participating in a regional bankruptcy task force and seeking recommendations from other credit unions. Each of the companies was thoroughly examined and Judy she regularly communicates with them to make sure that the referred clients are being treated fairly.

Judy personally helps each client initially follow their financial plan, but she takes steps to ensure that they grow to be self-sufficient. Eventually Judy makes the clients personally accountable for his or her own finances. They have to be proactive and initiate contact with the Budget Counseling Service and maintain their plans themselves. Making the client more accountable for his or her actions is a very important part of the process. If a client is hindered by medical conditions that do not allow them to accept additional responsibility, Judy will maintain primary control of their financial responsibilities (e.g. stroke victims).  

No Lack for Clients

Judy currently works with approximately 300 individuals intermittently and receives about 100 new referrals per month. If a member that she has previously counseled faces financial hardship down the road, they often contact Judy. “They always contact us again because they know that we are here to help them through their financial challenges,” says Baker.  

Results

UFCU tracks the potential losses that the credit union would face if the members who use the Budget Counseling Service declared bankruptcy. These losses are estimated at $2 to $2.5 million. One of the first questions that Judy asks her counseling clients is whether they are contemplating bankruptcy. The answer to this question helps shape the advice and also informs the credit union that they should be cautious about offering lending solutions to members who are considering it. The vast majority of those who come to the Budget Counseling Service do not file bankruptcy, resulting in a win-win situation for everybody.

In the current economic atmosphere, financial assistance services are needed now more than ever. Referrals to the Budget Counseling Service have doubled since September 2007. There are not many budget counselors out there for UFCU members to utilize, and the credit union found that they could specifically improve the lives of their members and those in their communities by offering such a service. It also positively differentiates UFCU from other financial institutions in their service area. Judy Baker brings a large amount of passion into her occupation, “It is not just a job for me, this service helps people, and it gives you a chance to demonstrate how much you really care!”

The goodwill generated for UFCU by the Budget Counseling Service in the communities it serves is not easily quantified, but is tangible nonetheless. Over the years, Judy Baker and the Budget Counseling Service at United FCU have assisted countless members and non-members at a time when they need it most. 

State Employees’ Credit Union (SECU) of Raleigh, N.C., ($15.9 billion) introduced a Million Dollar Sweepstakes in 2007 to encourage member checking account holders to convert from paper statements to e-statements. The Sweepstakes was intended to educate members on the cost to their credit union each month to print and mail paper statements and how members directly benefit when SECU is able to improve efficiency. The Million Dollar Sweepstakes began in January 2007 and ran through December 7, 2007. In order to dissuade members from switching to e-statements to become eligible for the contest and then switching back, the contest was scheduled to last a full year. Over the course of 2007, one hundred members won $5,000 a piece and 20 lucky members won $25,000 each. The first drawing was held in February, and eleven subsequent drawings were held through December 2007, resulting in $1,000,000 in member awards. 

The idea of a sweepstakes came from SECU’s 1,500+ volunteer branch Advisory Boards, which work directly with each of their 200+ local branches. The Board of Directors asked Advisory Board members to suggest ways in which SECU could increase the usage of e-statements and checking services. Advisory Boards, which serve as local focus groups for the credit union, endorsed a sweepstakes approach as most likely to capture members’ interest and participation. Advisory Board members particularly liked the idea of sharing the cost savings with the membership through the Sweepstakes drawings.

The cost for SECU to produce and mail monthly paper statements generally exceeded $1 per statement in printing, postage, and handling costs. At the launch of the program, there were 683,000 SECU checking accounts. SECU estimated that the cost of sweepstakes prizes would be recovered if as few as 15% of the SECU checking account members signed up for e-statements. The credit union realized that finding a way to move more members from paper to electronic statements would generate tremendous savings.

To inform their membership about the Sweepstakes, SECU ran promotions through several different channels such as banners, posters, and other materials in branches, statement inserts, and SECU’s monthly newsletter. The theme for the campaign was It pays to be a member-owner, and guided members to understanding that members themselves would be generating the savings and reaping the benefits. SECU explained to its members that e-statements are not subject to loss or delay through the mail, that receiving statements electronically may reduce the risk of fraud or identity theft, and that members can review checking transactions and check copies via the internet daily. SECU motivated many members by both informing them about environmental benefits of e-statements and explaining that the resulting savings would benefit the entire membership.

Seeing Results
The initial response to the Sweepstakes campaign was very positive and e-statement enrollments increased dramatically. The first week the Sweepstakes ran in January, e-statement requests doubled the total requests for December, 2006. The momentum continued and SECU received a 40 percent increase in the number of members opting out of paper statements in the first month. At the end of the promotion, over 150,000 of 1.45 million SECU members were using e-statements; over 95,000 of these members switched during the promotional period.

Three months after the Sweepstakes ended, SECU continues to see members switch to e-statements. Since 1Q 2007, the number of share draft accounts has increased 6.1 percent to 739,207. Of the members having these accounts, 24 percent or 177,548, now receive e-statements. This is three-fold increase over the 8.1 percent before the Million Dollar Sweepstakes. Because of this successful program, the credit union will see an annual savings of approximately $2 million, which will increase year after year.

Leigh Brady, SECU’s Senior Vice President of Education Services, says, “E-statements are a wonderful concept – they are provided to members at no cost, generate substantial savings through reduced postage and paper, and offer great environmental benefits as well. Moreover, through the Million Dollar Sweepstakes, SECU had the unique opportunity to give back even more, taking the ‘People Helping People’ philosophy to another level.

“One million dollars was put in the pockets of 120 lucky individuals,” continues Brady. “Many of whom used the funds to pay down debt, pay for higher education, and put down payments on homes. At SECU, we strive everyday to help members improve their financial wellbeing and the Sweepstakes was a successful way to make a difference. The annual savings of almost $2 million will continue to benefit SECU’s membership.”

Altura Credit Union ($940 million) is located in Riverside, Calif., at the epicenter of the housing crisis. Despite the difficult economic environment, Altura grew in 2007 while maintaining a high level of service and reaching out to members in distress.

Addressing the Housing Crisis:
At the end of 1Q 2008, NCUA examiners wrote Altura: “Try to keep your members in their homes if at all possible.” The examiners suggested loan extensions as a way to alleviate the financial strain on distressed members.

In February, Altura and their CUSO, Patrion Mortgage, held a public seminar for persons in the community who were having trouble meeting their loan payments. About 100 members and non-members attended. At the seminar, the credit union gave a presentation covering various options individuals could pursue to manage their debt and mortgage payments. Afterwards, some attendees asked for assistance; they answered questions from Altura loan officers and filled out loan applications. The loan officers then appraised the properties, evaluated the information, and presented loan proposals to the credit union.

Helping the Member:
According to Suzie Kisslan, SVP of Lending and Operations at Altura, “When members begin to fall behind on their loans and are financially distressed, they are afraid and embarrassed. Many fear that if they contact their lenders and ask for help, the automatic answer will be no, when in fact, many lenders are willing to work with them. We try to get our members to call us and their other lenders as soon as they hit a rough patch. Many of our members have the ability to eventually repay their loans and do not want to walk away from their homes. Helping our members avoid foreclosure is not only a way to provide great service, but also positively affects the bottom line of the credit union. As our members come to us for help, we are willing to work with them to find a solution.”

Altura lived up to these words when it went above and beyond to help members who needed help with their existing mortgages. It has worked with members to modify existing loans using methods such as adding payments to the back of the loan while maintaining the same rate. The credit union has even refinanced mortgage loans where loan-to-value exceeds 100 percent. Altura has refinanced four of these loans, with the highest at129 percent loan-to-value. For each of these refis, Altura was the second position lender. The members were facing resetting ARMs on their first mortgages held by other lenders, and were afraid that they would lose their homes.

Three of these loans were originated from members who attended the public seminar and one was originated from a member who called to ask: “I’m in a bad situation — is there anything that you can to do help?” According to Kisslan, “When our collectors talk to members and realize they are in a difficult situation, they refer them to a collection manager, who examines each case and determines how the credit union can assist them. It is impossible to help everyone, but we do what we can, and go out of our way to help members who have problem loans elsewhere.”

Community First CU of Appleton, Wisc., ($1 billion in assets, 77,000 members), a 13-county community charter credit union that is the third largest in the state, held a four-day loan sale beginning January 31. This was the day after the Federal Reserve unexpectedly dropped interest rates 75 basis points prior to their regular meeting; Community First’s pre-made ads (they plugged in the interest rate once the Fed’s regular announcement – an additional .50 bp drop - was made) hit the airwaves within 24 hours of the Fed’s lowering began making news headlines. The credit union offered rates as low as 3.95% on any secured loan, real estate and refis included (the rate was guaranteed for five years). The lowest rates were for the best credit and for loans of at least $10,000 in new money. Persons taking advantage of the loan sale had to have a direct-deposit checking account with the credit union. Community First was hoping for $35 million in loans but got 2,000 calls on the first day and over the four days received 3,000 applications for $158 million in loans. [For more on the loan sale, see the February 2008 Callahan Report –ed.] Cathie Tierney is CEO.

How did the loan sale turn out for you?

CT: It was amazing. We wrote $149 million in loans. Ninety-three percent of the applications were approved. The other 7% were not necessarily poor credit risks; the applicants may have balked at giving us their checking or direct deposit. Thirty-one percent of the applicants were new members, who opened 696 new direct-deposit checking accounts with us. Seventy percent of the $149 million was new money.

How did you finance these loans?

CT: Off our balance sheet; we did no borrowing to cover these loans. We are generally 95-98% loaned out.

Some would say you set the rate too low. How has this worked out for you?

CT: Very well.  Not all of the loans were written at 3.95%, of course. That rate was for persons with the best credit. Because of risk-based pricing, the average yield on the entire portfolio of sale loans was 4.27%.; the yield on auto loans was 5.03%.  We are not a margin-driven credit union; rather we pride ourselves on being a relationship-driven credit union, and this loan sale helped that. But note that we have exceeded a 1% ROA every year since 1995.
Also while many people with excellent credit were very happy to lock in our best rate, many with B & C credit were very pleased as well. They might have cut their auto loan rate in half from 12% or14%. In one case we cut a car loan rate from 18% to 5.2%, saving the couple $182 a month. Boy, were they happy.

How do the loan-sale participants compare to the average member of your credit union?

CT: We’ve done some analysis and: Of loan-sale households, 76% are profitable, versus 44% for the average member. Loan-sale households use 3.97 credit union services, versus 2.56 for the average member. Loan-sale households have an average deposit balance of $19.5K, versus $17.8K for the average household. The loan balance comparison is $78.9K to $22.1K. Comparing percent of households having three or more services, the numbers are 85% versus 43%, and for percent having checking, the numbers are 96% versus 61%.  Thus we developed deep and important relationships for the credit union.

Can you say anything else about the people you attracted?

CT: Just anecdotally. I think that in more than a few cases we attracted people who never before would have thought of doing business with a credit union.  But they could see that we had an unbeatable deal.  Once we’ve got their attention we take the opportunity to tell them the credit union story – how we are a cooperative — and they begin to see how a cooperative works.  I think this sale has done a lot of good helping people understand the intrinsic value of being a member-owner.

How else did the sale help Community First?

CT: As soon as the sale was announced, I received an email from Randy Karnes.  I think he summed it up best:  “It was about grabbing a moment, running a giant advertisement, and stunning the market for just a second, and in doing so you will have both member and your competition scratching their heads for months to come.  And many will wait in anticipation of your next move for quite awhile – and that move never has to happen to achieve the top-of-mind moment you wanted.

Pricing is a simple formula = cost of funds + servicing + (profit – marketing incentives).  In most cases we manage that last element to be a positive number, but in some cases we know that marketing incentives are the investment in the future that drive not only future profits but even the chance for future profits.” 

Was your staff at all concerned about the workload imposed upon them?

CT: The workload was significant; we were processing 100 to 130 loans a day for a while. But the staff responded heroically. By coincidence we announced their 2007 bonus in January the same night we announced the impending loan sale. The bonus was 7% and naturally well-received. Everyone in attendance could understand that the loan sale was going to take us a good way toward our 2008 loan growth goals, and would also really help our members, so they were excited about it. As it turned out, the loan sale took us a lot farther toward that goal than we had projected. We are now into October in terms of progress toward our yearly growth goal.

And the members are happy, of course.

CT: We tell our members repeatedly  “You own Community First and the profits come back to you.” The people who took advantage of our four-day loan sale really believe that. We know we have made some loyal members for life.

What is the greatest potential risk from the sale?

CT: That we would guess wrong and not attract the volume we needed to make it a success.  Also, we don’t want a reputation as a low-price provider – we don’t want our members to be sensitized to buy from us strictly on price.  But every so often you have to do something big and bold.  As I said, we don’t manage to the margin; we feel we are here to help members and focus on building long term relationships.  We think we are doing that and we think this loan sale has been a part of that effort.

Community First CU of Florida began in the Depression as the credit union for teachers in Duval County. It now is the ninth largest credit union in Florida with $1.2 billion in assets and more than 100,000 members. It serves a number of counties in northeastern Florida as well as education-related SEGs (colleges, private and public schools, etc.); it is headquartered in Jacksonville.

You are in one of the states most affected by the mortgage problems. When did you begin to see problems and how did you react?

JH: Yes, Florida and California are the two hardest hit states I believe. We began to see problems last summer. This was after many subprime-related problems were being written about in the press; I think the mortgages with more traditional underwriting – such as ours – saw their troubles coming later.

We noticed that problems were not confined to mortgages; early in 2007 we could see that there were challenges in our indirect lending portfolio as well. This occurred after we had decided in 2006 to exit the indirect lending business. We found these borrowers were not loyal to the credit union and that it was difficult to sell them additional products and services. We decided to put more resources into strengthening the relationships we had with our members and focus more on organic growth.

Did you see your mortgage portfolio suffer?

JH: We did. Mortgage delinquency began to increase last summer but did not increase markedly until the fourth quarter.  Volume, on the other hand, was relatively soft for the first three quarters of the year. 

Our ROA for the first three quarters was about 0.75 and then dropped to 0.5 in the fourth quarter.  Through this time, however, our deposits remained strong, owing at least in part to our attractive rates.

How have you responded?

JH: Really, on two fronts. We are trying to control costs but at the same time expand so that we are stronger when all this trouble is behind us. In a way we are two organizations, one being very careful and the other reaching out to the future.

How are you dealing with the mortgage problem?

JH: Again, on two fronts. We expanded our mortgage program and we worked to establish a closer relationship with our third-party service provider; I’ll start with the first.

When the mortgage credit problems began and other lenders started tightening, we saw a real opportunity, namely expand our mortgage program. We had long prided ourselves as being the straight-talking, no-nonsense lender with good rates, so we stepped up our promotions. We have a program called Silver Lining – we are people’s silver lining in the mortgage crisis. We promoted this well, and we have seen record levels of first mortgage volumes for us – mainly in refis, but recently moving toward purchases.

Now the delinquencies. In the pre-problem days, delinquencies were very low. We read our service provider’s monthly reports and that was about it. When delinquencies spiked up we decided we wanted a different approach, namely a closer relationship. Now our collections manager and the provider have a weekly telephone call and we have access to their systems to review their daily collections activities. We’ve worked out ways of dealing with differing credit-related circumstances, for both people thinking they may be getting into trouble and those who have been delinquent for quite a while. The work between us and the provider is now rather seamless. We’ve learned how to improvise and to work with people missing payments on our non-mortgage loan categories. This has all helped quite a bit.

What are your expansion plans?

JH: We don’t think the economy is going to last like this forever, so we are planning for an expanded future. For example, we are going to open two new branches in two new markets for us. We won the contract to place a full-service office at the University of North Florida student center. We are also investing in new online technology – among other new features, our members will be able to open accounts online.

We feel we have to be very careful to prioritize and focus on the areas that will have the best impact for us for future growth. An aspect of that is to see how we can stretch our fixed assets. One way we are doing that is expanding our branch Saturday hours to 5 PM, the first financial institution in our market to do so. We studied this quite a bit and found that if we made adjustments to staffing we could do this without a lot of impact to the bottom line. Staying open until 5 PM on Saturday stretches or makes the most of our brick-and-mortar assets. Members have repeatedly said they want convenience and access, and we want to take every opportunity to grow in our market, to stand out in a tough environment. Staying open this way does both.

You have some other initiatives?

JH: We are looking to expand our active checking accounts and we are also working on member education. Check penetration is a common measure in credit unions, but what really is valuable is active checking accounts, because many checking account books are merely lying around in drawers.  We did some data drilling and found that an active checking account leads to an increased relationship and more income. So we looked at how we can secure more active accounts. First we chose six transactions a month as our definition of “active.” By this measure 74% or our 59,000 checking accounts were active. Then we worked at making more accounts active. One thing we have done is offer 7.5% interest on the first $500 in a checking account – for this, members need to have an active card with us and bill payer. We know that it is very difficult to entice people to move their checking accounts from an other institution, so another thing we are doing is trying to win over members with other products and then work on them to do their checking with us.

What about member education?

JH: We wanted to add more value to our members and SEGs and we heard a lot about member education. Because we are an education-oriented credit union we thought this would be a good fit. We had done some financial education in the past but it was never formalized. So we decided to form an education committee of Board members and staff interested in member financial education, and it really took off. Soon we partnered with four other credit unions and together we offer the National Endowment for Financial Education (NEFE) curriculum to public schools. For example, in our area, we and the four other credit unions are engaged in teaching 9,000 ninth-graders; teachers teach the curriculum, but our people are the guest speakers. We have also put together an agenda for colleges, career academies, high schools and the like. We conduct seminars, assemble curriculums, develop in-house speakers and so forth, so we have a multi-level approach.

 We have found that this gives us a great deal of exposure and brings us both new members and new business.

2007 turned out to be a challenging year for net income.  A continuing margin squeeze coupled with a large increase in loan delinquencies and write-offs resulted in a strained ROA.  We experienced increased losses across all of our products and geographies.  We definitely see this trend as part of a broader shift in the credit cycle that is testing our risk management assumptions and pricing strategies.  The initial attention on subprime mortgages has obviously grown to a much more far-reaching strain on the economy.

Going into 2008, we are confidently sticking with our long-term strategic plan which is performing extremely well for us showing sustained growth in members, relationships and loyalty.  Beyond that, we are looking to strengthen our risk management capabilities and organizational efficiency to address the challenges in the current environment and show continuous improvement through what we learn.

Volatile times like these inevitably create opportunity for those organizations strong enough to weather the storm.  Credit unions in particular have the opportunity to leverage their value proposition, high trust and strong balance sheets to be positioned for growth.  Several areas that we see as being especially attractive include:  mortgage lending, share growth, membership growth and new branching opportunities.

The key lesson we took away from 2007? Don’t Panic!  Having been in the credit union arena for over 40 years, this market cycle, too, shall pass.  Actually, Envision did better in 2007 than in 2006, because we stayed the strategic course in all the fundamental areas — core loan products and competitive savings rates — without trying to grow the assets.

We expect more of the same in 2008 and we expect a doubling of our net revenue over 2007.  While we’re well capitalized, we don’t want to be too conservative about growth in the asset base.  Our home loan portfolio is very strong and productive, as is, surprisingly, our credit card portfolio.  These will be the key product lines, while automobile loans have and will continue their trend down in importance in our mix.

Our strategy will be consistent and predicable in light of the credit markets meltdown.  However, we see a great opportunity in our CUSO to expand upon our offerings to the more than 85 credit unions we currently serve.  We believe that cooperation among credit unions via CUSOs is one way conservation of resources can take place, while exploring new ways of jointly providing the infrastructure each of our credit unions need for seizing upon new opportunities.  From data processing to human resources, from member business lending to managed network services, credit unions can benefit through collaboration and “co-opetition.”  CUSOs offer that final frontier where credit unions can still be friends with one another.

Chartway is a consumer lending organization; as the individual markets are more saturated, the competition for one sale has become more intense. In 2007, we came to a realization that even the credit union industry has lost cohesion. Credit unions are competing with their brethren — opening branches across the street from one another to gain new business rather than serve the existing membership. For some, the cooperative spirit has deteriorated into “only if it doesn’t hurt us, then we’ll help”.

For 2008, we’ve increased our focus on our business model and differentiation. The ability to grow intelligently depends on both the price slope and cost slope. We’ve found that as products mature, the price slope is declining at a faster rate than the cost slope, leading to the interest rate squeeze.

The current environment is a wonderful opportunity for credit unions to step forward and provide credit with our excess liquidity. We are able to help people who have good credit but are in a bad situation. While the environment is negative, our marketing is positive.

Right now, no one wants to offer solutions. The solution is credit unions. Put us front and center from the legislative standpoint. We stay true to who we are and help people.