Alterna & Pace Wed: What it Means for Mortgagors

Alterna-Pace-MergeWe’ll see a number of credit unions merge this year. The latest is Alterna Savings and Pace Credit Union.

By combining, the two have leaped into the top 10 credit unions in the country, by both assets (now $4.1 billion) and members (now 140,000+). See the current rankings.

The deal should benefit mortgage consumers on multiple fronts.

Scale Helps

“This will obviously increase our balance sheet, which gives more opportunities to lend,” Alterna CEO Rob Paterson told CMT.

And it already lends quite competitively. “We don’t have to get the same returns as the big 5 (banks)…We are member owned. Banks are owned by shareholders who are not their direct consumers. That means we can put more money back into the homeowner’s pocket.”

One of the opportunities this deal creates is the ability for Alterna to leverage Pace’s success with builder financing. Another is to broaden Alterna’s reach with mortgage brokers, who will now benefit from Alterna/Pace’s expanded lending area.

Yet another benefit relates to securitization. Alterna funds most mortgages using its balance sheet. Scaling up will help it deliver bigger pools of mortgages to investors, potentially improving its liquidity in the securitization market.

Credit Unions Want to Play

More and more, Canada’s bigger credit unions are taking on the Big 6 banks with sharper pricing. This ad below shows Alterna’s latest initiative. It’s a 5-year rate intentionally priced one basis point below BMO’s much publicized 2.99% promotion (note: like BMO, this Alterna special also comes with strings — 10% prepayment privileges instead of 20%, restrictions on refinancing elsewhere before maturity, etc.).

Alterna_2.98

One benefit commonly touted by credit unions is member dividends. This is where a CU returns part of the interest mortgage customers pay in the form of a dividend. Alterna/Pace doesn’t use this model. “We’ve chosen not to do that (give dividends),” Paterson says. “We want to give (customers) the best transparent rate we can.”

In this website’s view, that’s the model of choice. Doing away with dividends makes it easier for consumers to compare offers. Moreover, people don’t have to worry about vesting periods for those dividends. (Some credit unions make you wait 1-2 years or more before you can start cashing in member dividends.)

Sidebar…

Alterna is one of two credit unions in Canada that also owns a full-service bank (Vancity being the other). That lets it lend across the country, if it so chooses. For now, however, it lends only in Ontario and parts of Quebec.

The Alterna/Pace deal remains subject to regulatory approval, due diligence and approval by each credit unions’ members.


Rob McLister, CMT (email)

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