The Rise of Credit Unions

Globe-Rate-TableA 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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Credit-UnionsLooking 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)

  1. Rob, this may be true of fixed rate mortgages but many CUs variable mortgage rates are highly uncompetative. Key CU, 5yr closed variable is currently 4.5%, Servus CU is prime 2.25% with zero discounting or Vancity at 3.25%
    As well, a CU’s business model often only offers the best rates to their most loyal and longest standing members who have multiple business with them.

  2. Can this reflect more on the fact that big banks are increasingly avoiding current finance applications due to market conditions? As oppose to CU aggressively pushing for best value, can this be just banks moving out? Banks can afford to not underwrite much for a long period if they feel the conditions are bad enough they would lose money as housing price soften, that’s just a theory. But if so, it’s more a elasticity issue for CU than their competitiveness for rates. This is interesting observation and it would be really nice to follow up in the future when the housing market condition change. That may help understand if CU can consistently offer values.

  3. Hi Banker,
    I’d agree that CUs have better fixed rates than variable rates.
    Mind you, not all CUs are totally out to lunch in the variable department:
    #2 CU: Coast Capital = P-.50%
    #4 CU Meridian = P-.30%
    #5 CU Envision = P-.30%
    The big banks are still advertising prime – .15%.
    It will be interesting to watch CU centrals amass more liquidity and power over time. Perhaps that will knock down their cost of funds on the variable front.
    This reminds me of something else you have to look out for.
    Some CUs don’t always follow bank prime. One prominent example is First Ontario–one of Ontario’s bigger cooperatives. In December 2008 they offered prime – 0.50% while other lenders were at prime + 1/2 to prime + 1%. Unfortunately, when the BoC cut rates First Ontario didn’t follow. Today their prime rate is still at 3.50%!
    Cheers,
    Rob

  4. Just rading your post for the first time and really am impressed!
    Now…as for the banker and his comments, I am a long time credit union member in Winnipeg (Cambrian Credit Union Rocks). They have been offering great mortgage and deposit rates without negotiation for years, plus they have a Free Banking offer for their members — I don’t see any banker giving free banking!?!
    Anyways, my mortgage is in a FULLY open variable rate mortgage at 2.49%, which I could transfer to any one of their closed terms at any time without penalty — which have a current rate of 4.35% for 5yrs or 4.09% for 3 yrs.
    Ohh ya, their savings rate is 1.25% and their prime is 2.25%.
    I suggest the banker walks main street before jumping to conclusions.

  5. Gary, other than being slanderous to big banks and myself (Bankers also work for CU’s), I am not sure what point you are trying to convey? Your beloved Cambrian CU only offers free personal banking so long as you have over $30,000 of business with them and also buy CU shares. Its worth noting, many big banks also offer free personal banking, subject to minimum account balances or senior accounts.
    As for my main point regarding many CU’s offering uncompetitive Variable mortgage rates, I guess we can add Cambrian CU to the list. 2.49% 5yr variable (P+0.24%) is not a competitive rate. But don’t take my word for it, ask a reputable mortgage broker!

  6. I have used credit unions on some transactions and for the most part the service has been good. The problem is everything has to be sent manually (no Filogix or Morweb) and since we don’t work with credit unions that often, it means having the brokerage registered with them as finder’s fee are paid to the brokerage and not the individual agent.
    Rate wise, on the fixed front some of them are quite competitive. However, on the variable side there’s much to be desired with many credit unions. I’ve seen some as high as prime +3%. There are some who are an exception, as Rob noted, but for the most part they’re not competitive with variable rates.
    I’ll usually send borderline deals.

  7. Banker: Gary said his rate is 2.49% fully open, which makes it very attractive. Typically those go for around 2.90% these days.

  8. You can even get lower than that but it’s not with a bank and a bank won’t match it either. I’ve read people are having a hard time getting the big banks to match ING’s publicly advertised rate of prime -.50% for a 5-year variable, let alone prime – .65% or lower.

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