In a move that will bring smiles to home buyers the Government of Guam Federal Credit Union will offer residential mortgages priced at “stateside” interest rates — 5.875 for a 30-year fixed mortgage and 5.25% for a 15-year fixed mortgage (as of Oct. 21.).
The credit union mortgage program is due to roll out in January but Tom R. Graves president and chief executive officer told the Journal that news is beginning to circulate by word of mouth.
Points and origination fee will be low only passing on to clients fixed costs such as title and appraisal fee. John Z. Arroyo vice president and chief operating officer at the credit union said “Maybe 5% of your loan amount will go towards paying all your closing costs. We’re going to reduce that rate by a long shot.”
“All those phony fees like document recording fees that banks charge – our intent is to pass through fees at cost not to upcharge them.” Grave added. Loan modification fees in the future of about $1 000 rather than a repeat of mortgage fees for refinancing was also possible Graves said. “We’ll look at strategies like that. Our goal initially is to portfolio as much as possible.”
Members would not be shortchanged Graves said. Dividends on savings would continue to be high.
The credit union has about 32 000 members of which about 30% to 35% are active employees of the government of Guam. Graves said potential was high to take mortgage market share just among members. “Most of our members are GovGuam workers or draw pensions from GovGuam. They have reliable income and are typically long-term residents of Guam — two things that key in to making sure that you have a strong potential in the local market.” About one-third of members borrow from the credit union.
While some members might not require a mortgage Arroyo said “a good portion of our members have residential mortgages elsewhere. It’s a fairly healthy portfolio for all the banks.”
He said the refinancing market continued to be robust. “We are in a test phase right now but we are finding out that most of the applicants are looking to refinance moving their mortgage here from other institutions.”
Software and materials such as application forms were in use. The test phase Arroyo said was to allow the credit union to smooth processes and procedures while the loan population was low. “We want to make sure everybody involved in it and the systems involved in it work properly before we open it up to the rest of the membership. We hope to have that done by January.”
About $2 million in residential mortgage loans had been approved for first mortgages on primary residences. “We’re just going through the process — getting the property title reports appraisals and things like that ” Arroyo said.
Graves said the new mortgage plan had relevance to discussions on expansion of the credit union. “We anticipate a pretty healthy mortgage department going forward. Right now we are limited where we can put people.” Five people presently make up the mortgage and mortgage support program; two new hires and three re-trained employees. Graves expected to assign other staff to the division to cope with initial demand. “Word is beginning to get out. We’ve had some calls from realtors asking about the product ” Arroyo said.
The credit union board began planning for expansion years ago. Graves became president in December 2002. “At our planning session for 2003 the board stated very clearly that it wanted to see mortgage lending for the members ” Graves said. John was brought in large part for his expertise in this area. It took some considerable amount of time to bring somebody with John’s skills onboard and from there to get the board accustomed to what it was going to take.”
Graves said the credit union’s main drive was to offer the service to members. “A secondary consideration is how profitable is that service.” He said the credit union was adhering to the industry motto: ‘Not for profit not for charity but for service.’ Losing money on this service for some time is a very realistic expectation as we build up the volume and build up our servicing. We’re not expecting to make an immediate turnaround but it is our long-term goal to have this be a break-even proposition or better for us.”
Arroyo said the credit union’s aim was “to provide the best product and service at the lowest cost to the consumer. When you look at pricing especially with the mortgage product we’re actually seeing what our competitors are doing out in the market and providing the best deal available.”
Mortgages offered are conventional Graves said. “We’re not currently positioned to offer non-conforming mortgages but long-term we’ll consider everything.” Meanwhile the credit union will offer 15- 20- and 30-year mortgages one-year ARMs. “We’re looking eventually at adding a convertible product and a land loan ” Arroyo said.
Graves said liquidity was a factor. “We can’t make every loan on-island because we don’t have the money.” Net income for the credit union in 2004 was about $2 million. “We have about $30 million to $32 million in liquidity we would be able to convert at some point to a mortgage loan portfolio but we have strategies that will keep our liquidity available to us even though we fund mortgages.”
Even if the credit union decided to use secondary lenders — possibly for part of a loan we will maintain the servicing here so to the members it is transparent ” Arroyo said. Graves said it was an issue for Guam-based assets to find a secondary market. “That’s why the credit unions through their network can facilitate these sales and that will allow us to continue our expansion.”
Federally charted credit unions are authorized only for residential loans on properties up to a fourplex unless a variance is given to allow commercial lending. Graves said the credit union was not looking at commercial lending in the short term.
The credit union’s low loan rates high saving rates and low service charges in general had proved attractive to people Graves said.
“As far as credit unions we have the largest share of representation on-island.” As of June 30 out of 1 175 credit unions GGFCU is the No. 1 U.S. credit union for net worth in the $200 million to $250 million asset range and third highest for U.S. credit unions with assets greater than $100 million.
Graves estimated it was the fifth-largest consumer-lending institute on Guam after Bank of Guam Bank of Hawaii Citibank and First Hawaiian Bank.
Reaction is expected from other lending institutions. “Some folks will introduce new products that are unique and define a different market niche; some are comfortable having higher pricing — they’ll say it’s a Starbucks experience ‘We’ll give you better service and we have more expertise and a longer time doing it ’” Graves said
Other banks understand the credit union has a unique position in the market. Ronald H. Leach senior vice president and West Pacific division manager at Bank of Hawaii the largest lender in the residential market said credit unions should be competitive. “Credit unions are by charter a nonprofit entity and pay no income taxes; therefore their rate structure can and should be competitive. However their reach into the community is also limited as they normally don’t have the capacity to sell their mortgages in the secondary market. The volume of mortgage loans a local credit union can book may well be limited by their own liquidity.
Leach said mortgage loan pricing — like other loans — was a matter of competition. “If GovGuam Federal Credit Union sees an opportunity to drive added loan volume into the market by adding mortgage lending to their list of products and by lowering pricing they will do so.”
Recognizing the competitive rates offered by the credit union in other areas such as auto loans Leach said pricing was not the only consideration in a loan relationship. “A client normally seeks an institution that is price competitive but also that employs qualified mortgage and retail lenders. A client wants to deal with an institution that has solid lending expertise. It is important for a client to receive a timely loan commitment and for their bank to fund that commitment quickly. Also clients want to deal with someone who will service their loans accurately; further with an institution on whom they can rely to give good financial advice and excellent service.”
Leach said Bank of Hawaii’s program was competitive. “Our rates are currently indicative of ‘stateside rates ’ and have been for some time. Our rates are competitive to the local rates offered by other banks and financial institutions on Guam and in Saipan as well as to the Bank of Hawaii rates offered to State of Hawaii residents.”
Companywide he said Bank of Hawaii would book in excess of $1 billion in residential mortgage loans in 2004. “To book this volume of business Bank of Hawaii rates must be extremely competitive.” Leach said in the Pacific the bank had seen more than a 40% increase in installment loans in the past 12 months. “This we feel indicates that we have found the right combination of competitive rates knowledgeable people and great service. We think this is the winning combination for our institution.”
Banks do compete in a number of ways. Citizens Security Bank offers a variety of commercial and residential mortgages. Angie Sharma vice president for commercial loans at the bank said a number of Guam’s banks use the same secondary market and service and offerings become important. Citizens Security Bank is able to offer a quick turnaround on residential loans. “If someone gives us a complete application before 11 a.m. we can give them a commitment within 24 hours. All our processing is done here locally.”
Guam’s total loans in 2003 were $2.32 billion. The residential loan portfolio for the island is estimated at $152.02 million.
The credit union has also moved to increase membership — and a customer base.
Family membership was always available according to the credit union’s bylaws Graves said. “We defined more accurately what constitutes a household member. It opened up the gateway to include some folks. While family membership is important it’s not as all-encompassing as people might think.”
In February 2002 Graves said “we began bringing in some Select Employee Groups.” These included Calvo Enterprises Inc. with about 900 employees; SPPC with about 180 employees; and the Archdiocese of Hagåtña with several hundred employees. “We rarely achieve 100% penetration ” Graves said “even if we offer better products better pricing.”
The credit union was considering opening services to all Guam residents. “We are exploring the idea of a community charter with our board but we haven’t as yet made that choice. We would stop being the last institute on Guam to actually prohibit anybody from joining us.”
The credit union also plans to increase branches and ATMs on Guam. Its headquarters and a branch are in Maite with a second branch in Harmon. A third branch opened on Oct. 1 at the former branch of the USA Credit Union whose 4 600 members the credit union offered service.
Graves said “We certainly recognize the need to have a branch down south and certainly one up north. We explored locations in the Dededo area but haven’t as yet found something. Our interest in the longer term is putting up something that has the functional features people like to see in a modern facility — like drive-through facilities.” He said the credit union however did not want to over-expand.
Fifteen ATMs are available — with the majority in leased space at South Pacific Petroleum Corp’s Circle K convenience stores one at each of three branch locations one at Guam Memorial Hospital and one at the Guam International Airport Terminal.
Although Graves said the credit union had “the largest on-island network ” Arroyo said “we’re hoping to get another 15 to 20 ATMs in the next 12 to 18 months. These will be at various locations throughout the island.”
Leasing ATM space at Circle K stores Graves said had been successful because the locations were high traffic. “It makes sense for any ATM — other gas station chains are certainly something we would be interested in discussing.” MBJ