NEW YORK CITY—Credit unions, a stranger to home loans a generation ago, are starting to branch out from simple mortgage originations for members to the more sophisticated secondary mortgage market to add to the number of home financings they can do.
A secondary markets conference held by the Mortgage Bankers Association here recently attracted a few credit union executives who wanted to be in the vanguard on the latest trends and techniques for tapping the capital markets for mortgage liquidity.
Secondary marketing, which usually involves selling credit union mortgage originations to second parties such as Fannie Mae, Freddie Mac, Ginnie Mae or Wall Street conduits, is clearly still in its initial stages for CUs. Of the 1,700 attendees registered for the annual show, just 1% was from credit unions. But they got the chance to see what the secondary market can do for their cooperatives.
Alaska USA Federal Credit Union, for instance, invests in mortgage-backed securities issued by Ginnie Mae.
Steven Larson, the company’s senior vice president for mortgage finance and servicing, who came down from Anchorage to attend the New York meeting, said the use of MBS for its Ginnie Mae executions “allows us to take advantage of better pricing.”
He said Alaska USA’s secondary market team is “continually looking to find the best execution for each mortgage to maintain low interest rates for our members.”
Asked about secondary market trends and issues for CUs, Larson responded, “The top issue is keeping up with the compliance changes related to the mortgage industry. New regulations implemented since the Dodd-Frank Act of 2010 have driven up the overall cost of processing a mortgage loan. The increased cost to comply increases the cost to the consumer.”
Alaska USA is projecting $1.1 billion in originations for 2015, he said. “This is a 10% increase over 2014.” Alaska USA services approximately $5-billion in mortgage loans.
Deborah Momsen-Hudson, vice president and secondary market manager at Self-Help Credit Union of Durham, NC, said her takeaway was that credit unions continue to work to adjust to the new mortgage regulatory environment. “The industry is developing a lot of tools to make it easier for credit unions to serve members, their communities, and be in compliance.”
Champion of Secondary Markets
Self-Help has been a champion of using the secondary markets to provide mortgage money for low-to-moderate-income and minority borrowers. Self-Help’s Community Advantage Program, a venture between Self-Help’s loan fund, the Ford Foundation and Fannie Mae, funded more than $4-billion of home loans in 10 years to LMI borrowers.
“The loans are all full-doc, retail origination only, fully escrowed, 30-year,” said Momsen-Hudson. “We also do intense loss mitigation. We are compensated for the credit risk through a fee that is part of the borrower's interest rate.”
The Ford Foundation’s role is to “provide a loan loss reserve to cover us in a catastrophic loss,” she said. With Fannie Mae, “Initially we were designing our own program and then when My Community Mortgage was rolled out we became a MCM no MI (mortgage insurance) product. As you probably know, 97% LTV loans were cut off and then (Federal Housing Finance Agency chair) Mel Watt reintroduced 97s back in the winter, so MCM 97% does exist again.”
Mike Fratantonio, chief economist for the Washington, DC-based MBA, told a press briefing at the conference that “we’ve seen mortgage innovation” from credit unions, though he added “I don’t know. That’s an interesting question,” when asked about the level of CU investment in MBS.
“They have been portfolio investors to a large extent,” he said, but noted the cooperatives “have been selling through all channels” (meaning secondary market channels Fannie, Freddie and Ginnie).
MBA held a networking meeting between credit unions and community banks at its meeting in New York, but the event was closed to the media.
--Mark Fogarty