The Rise of Credit Unions

A quick glance at today’s Globe & Mail mortgage rate tables shows credit unions with nine of the ten best five-year fixed rates.*

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In the Financial Post’s mortgage tables, credit unions make up 10 of the 15 lowest rates.

On any given day, there are numerous credit unions (CUs) across the country with excess cash to lend. More and more, they’re using cutthroat rate promotions to lend out that cash and attack their big bank competitors.

In the last month, for example, we’ve seen surprisingly aggressive promotions from Vancity in Vancouver, First Calgary in Calgary, and Meridian in Toronto. In each case, their promo rates have been well below the lowest advertised rates of any competitor.

From a mortgage customer’s standpoint, CUs offer some key advantages:

• Low rates (when promotions are available)
• Profit sharing (see Vancity & DUCA’s dividend policies, for example)
• More flexible underwriting in their local markets (Vancity’s director of mobile sales and brokerage, John DeRose, says: “We understand the [local] market…we don’t have to go back east to get an answer.”)

Of course, credit unions sometimes have their cons as well:

• More loan conditions, which may include extra documentation requirements, membership agreements, opening of chequing accounts, personal references, etc.
• More restrictive portability (there’s typically no porting if a borrower moves across provincial borders)

From a broker’s standpoint, CUs have generally been a “use em when we need em” type of lender.  They’re generally not the average broker’s first choice of lender. Rightly or wrongly, that is probably due to the perception that CUs:

• Have widely differing and sometimes poorly documented lending guidelines
• Are slower with approvals and fulfillment of conditions
• Often don’t pay the same level of compensation (they often have hard-to-attain volume bonus levels or no volume bonus at all).

(Again, there are numerous exceptions and these are not blanket statements about all CUs.)

From our viewpoint, CUs are like any other lender. When they have the best overall deal for our clients, we send them the business. Personally speaking, we’ve had great experiences with a number of credit unions. They’re typically very relationship oriented and they often have a greater propensity for common sense lending.

It’s also nice to see credit unions making a push for more broker business. We keep an in-house database of lenders and in the past three months, we’ve added five CUs with brokers channels, and removed just two that have closed their broker channels.

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Looking ahead…

Canadian CUs have over five million members and 19% market share in residential mortgages. Those numbers may grow noticeably once federal legislation allows them to lend across provincial lines.

"We think this is historic legislation," says Tracy Redies, CEO of Coast Capital Savings, one of Canada’s largest CUs.

CUs are also being aided by the support of credit union centrals. Moody’s analyst, Ali Mozaffari, says, “These [centrals] provide member credit unions with vital supports, such as access to technology, funding, liquidity, and payment-clearing.”  He says that credit union centrals are providing the framework for future CU growth.

Speaking of growth, CUs are currently growing faster than the big banks--according to Moody’s--and there’s no sign of that growth reversing.  Homeowners and brokers should, therefore, expect to hear more from credit unions in coming quarters.  Their battle for mortgage market share will be increasingly noticeable as time goes on.

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* Note: The rate tables you’ll find in the media do not contain all rates in the market. They leave out many promotional rates and broker rates. Nonetheless, credit unions are well represented when it comes to the country’s best rates.

(Partial sources: A Union I Want To Join by Garry Marr, Financial Post; Small Players, Big Moment by Nicolas Van Praet, Financial Post)