A Wallet Allocation Rule Approach to First Mortgages
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Unlike fast food chains, hotels, or even deposits, loans typically reflect a winner-take-all equation: There are no financial rewards for credit unions when they do not rank first among competing alternatives. With high-value loans like mortgages, home equity lines of credit (HELOCs), and even auto loans, it will be years before members are back in the market. That makes it essential to understand why your members do choose your loans, and, more importantly, why they bypass you for competitors.
This research uses the Wallet Allocation Rule to understand not just why members prefer credit union loans but which specific drivers move them to use competing banks and credit unions. The sample consists of 5,619 current credit union members who were interviewed regarding their loan with either the studied credit union, a competing credit union, or a bank. Respondents must have applied for a loan within the past three years. They were surveyed regarding the process by which they selected an institution for a particular loan category (only one loan was discussed per respondent). The sample of members is large enough and from enough different credit unions that we believe the findings here are generally representative of credit union members overall.
Recognizing that different loan types come with very different drivers, we separately examined first mortgages, refinanced first mortgages, second mortgages, HELOCs, new auto loans, used auto loans, and personal loans. Respondents were asked to select all the attributes that played a role in their decision-making process from a list of approximately 40 choices. Once the larger list was narrowed to only the relevant factors, respondents were asked to rank those factors in order of importance. The research explores: (1) how members form a consideration set, (2) how much time they typically spend shopping for a loan, (3) their preferred source of loan information, and (4) the most important drivers of loan selection.
In this report we focus on first mortgages and what credit unions can do to capture a significant share of this market. Here are some of the common themes that emerged from the research:
- Credit unions must do a better job of making their members aware of their ability to offer the loans that best meet members’ needs
- Among members who chose the credit union for their mortgage, the most important factor in their choice was their percieved relationship with the institution
- Banks are percieved as offering "better fitting" loan types and appear to have better relationships with mortgage brokers
- Members value price (i.e., loan interest rate) as an important driver for mortgages regardless of the financial institution
Filene thanks our generous supporters for making this very important research possible.
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