Credit union mortgage lenders came off a record breaking year in 2009, but industry executives fear 2010 may not see the same sorts of gains.
"We reached almost a 5% market share in the third quarter, and the data are not in yet for the fourth," said Robert Dorsa, president of the American Credit Union Mortgage Association. "We expect that the overall numbers for the year will also be strong, but we want to help keep credit union mortgage efforts goings into this year as well."
Dorsa and other executives worry that a number of different aspects that helped propel credit union mortgage efforts forward in 2009 have either disappeared from the scene or changed significantly this year.
For example, credit union mortgage programs last year benefited from falling interest rates, which helped spur mortgage refinancing, as well as a widespread retreat from the market on the part of many mortgage competitors. But this year Dorsa and other analysts expect to see stable to rising mortgage interest rates that will dampen the market for mortgage refinancing overall, thus taking some of the energy out of credit union's best mortgage market. Further, after having been left as almost the last lender standing in some markets, credit unions face reinvigorated mortgage competition this year, Dorsa said.
"We have already seen notices from major players in the market that they are hiring more mortgage brokers and more mortgage agents," Dorsa said. "I expect there may be more people trying to get a piece of what may be a shrinking pie."
Further, Dorsa pointed out that credit unions, like all mortgage lenders, are having to comply with new mortgage regulations and new rules governing the settlement process flowing from the Real Estate Settlement Procedures Act.
"If we look at the landscape minus the regulations implementation, this is a lot like 1995," Dorsa observed. "Way back in the mid 90s, credit unions struggled with purchase money loans in the aftermath of the last decade's refinance frenzy. Thankfully, ACUMA has worked diligently building a high quality credit union mortgage lending network and association geared for just this purpose."
But Dorsa stressed that neither he nor ACUMA believed credit unions should retreat from mortgage lending or conclude that since the market for mortgage refinancing might slow, they should lay back on their mortgage programs.
ACUMA will continue to stress credit union cooperation and networking, a method of allowing credit unions to benefit from each others' experience in mortgage lending. The association will also soon release a checklist entitled "What Realtors Expect From Lender" to help credit unions gear to compete in the market for new mortgage loans as well as refinancing existing mortgage loans.
"There has never been a greater need for credit unions to band together than now," stated ACUMA Board Chairman John Reed, CEO of Maine Savings FCU. "We anticipate much more competition for fewer loans. We have noticed major lenders already committed to hiring more originators to compete in the trenches on Main Street in every community," he added.
Issuing mortgage loans insured by the Federal Housing Administration and getting approved to offer FHA loans continue to be areas that need credit union focus, according to Dorsa and other executives. In the wake of the housing and mortgage crises, loans insured by the FHA have becomes sharply more popular, particularly for loans headed for sale in the secondary market.
But Dorsa and other executives report that only a few credit unions, maybe less than 50 nationwide, and relatively few mortgage CUSOs are approved to offer FHA-insured mortgage loans.
Kathy Carlson, CEO of Members First Mortgage, a mortgage CUSO based in Michigan, reported that between 20% and 25% of the mortgages the CUSO handled in 2009 were FHA-insured mortgages and suggested that using CUSO's to help credit unions be able to issue loans with FHA insurance may be an important element for the industry to use.
"Having sufficient volume can be one stumbling block to becoming an FHA-approved lender," Carlson explained. "Going with a mortgage CUSO like Members First can help a credit union overcome that hurdle."
But there are also signs that FHA is tightening up the lending standards for the loans its insures as well, making them more expensive in order to better manage its risks and potential losses.
Under the new rules, borrowers must pay an increased upfront mortgage insurance premium of 2.25% of the loan amount. This is an increase of 50 basis points from 1.75% previously.
FHA loans typically have a low down payment requirement of only 3.5%, so borrowers must pay for mortgage insurance to offset that risk. Unlike private mortgage insurance, FHA borrowers are able to finance the mortgage insurance, thereby spreading its cost over the loan term. Analysts estimate that increasing the MIP would add an additional $1,447 to a $300,000 loan.
Further, the new rules require borrowers with credit scores of below 580 to make a minimum down payment of 10%, up from 3.5% previously, and analysts have predicted this will effectively narrow the market for mortgages significantly. But others have been more optimistic, pointing out that while FHA has never had a minimum credit score for its loans, many lenders did and that their limits were usually higher than 580.
Despite the challenges that arrive with 2010, Dorsa remained fundamentally optimistic about credit unions' mortgage prospects, pointing out that building a long-term mortgage business takes time and commitment and that credit unions have both. He also noted that the increased interest in financial products that are good for consumers also favors credit unions. The biggest obstacle, he said, maybe some credit unions themselves.
"Credit unions just have to decide that they can and should make mortgage loans," Dorsa said. "That's the simple first step but sometimes the hardest one to take."