Checking vs. 1st Mortgages: Which is the Strongest CU-PFI Driver?

By Jon Haller
Director of Market Research,
Credit Union National Association

Checking accounts have historically been and continue to be credit unions' key to securing primary financial institution (PFI) status among their members. CUNA's 2002 National Member Survey Report shows that nearly 60% of members who use the credit union's checking account consider the credit union to be their PFI. By comparison, the corresponding figure among all credit union members is 42%.

Some credit union experts have been espousing the virtues of 1^st mortgage loans as the leading, or at least soon to be leading, PFI driver. But - quite frankly - we don't see it.

The 2002 National Member Survey Report points to many reasons why.

• A total of 42% of members currently choose a credit union as their PFI. Only 5% of members have a credit union 1^st mortgage loan. Even if all of these credit union 1st mortgage holders considered a credit union to be their PFI (they don't), that only accounts for 5 percentage points of the 42%. That is, there's another 37%-worth who chose their credit union PFI based on some other factor(s).
• Nearly 60% of members who have a credit union checking account choose the credit union as their PFI. However, for members with no credit union checking account - among them, members with a credit union 1st mortgage loan but no credit union checking account, those with a credit union vehicle loan but no credit union checking account, etc. - the figure stands at just 9%.

  The highest credit union-PFI loyalty among non-checking users is found among those with certificates at the credit union (but no checking account), at 15%.

• Just 2% of members indicate that a 1^st mortgage loan was anywhere among the first five credit union services they obtained after they joined (and opened a share savings account), according to survey findings from "Credit Union/Employer Partnerships: Building Worker Assets" - a project conducted by CUNA Market Research in conjunction with the National Credit Union Foundation (NCUF) and funded by the Ford Foundation.

  

  Moreover, among the 17 services listed, the 1^st mortgage loan came in 15^th place, overall, and 11^th among balance-carrying products, in terms of its likelihood of being among the first five services obtained.

  Several access-related products, such as ATM/debit cards and payroll deduction, and a long list of balance-carrying services, such as vehicle loans, personal loans, credit cards, club accounts and a second share savings account all were noticeably more likely than 1st mortgage loans to be among the first five services acquired once they joined.

  The top service? No surprise, here - the checking account. About 40% of members say a checking account was the first service they obtained once they became a member, and nearly 65% say this account was among the first five accounts they opened

• Among members who have both a credit union checking account and a credit union 1st mortgage loan, 63% choose the credit union as their PFI.
• When members are asked why they choose a particular institution as their PFI, the vast majority - three in four - say it is the provider that holds their primary checking account. Conversely, just one in four say it is the provider that holds the majority of their loans (of which 1st mortgage loans would, assumably, be only a subset, along with car loans, home equity loans, credit cards, etc.).

First mortgage loans are undoubtedly an important service for credit unions to offer. In fact, the table below outlines, definitively, how offering 1^st mortgage loans - with or without also offering checking accounts - has a tremendous positive impact on a credit union's growth, loan-to-share ratio and return on assets, and should be an integral part of any credit union's range of services.

Moreover, few would argue with the contention that 1^st mortgage loans provide an excellent, additional opportunity for credit unions to strengthen financial relationships with their members.

At the same time, though, it is apparent that credit unions would be best served by providing mortgages along with, first and foremost, an attractive and competitive checking account offering(s), and, that - to put a credit union twist on an old Mark Twain saying - news of the death of checking as a PFI driver (and the strength of 1st mortgages) is greatly exaggerated.

Next month's topic: Electronic Bill Payment (EBP) and Credit Unions: EBP Volume and Annual Costs to Provide the Service.

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