Even as the economy improves, foreclosures remain a problem for many lenders–but not for the National Federation of Community Development Credit Unions.
The federation’s mortgage program has experienced no foreclosures and only a few delinquencies. Minor modifications have worked out well. Terri Fowlkes, director of NFCDCU Community Development Investments, which includes the CDCU Mortgage Center, credited that to several factors.
"We’re buying these loans from member credit unions," she noted. "The credit unions have strong relationships with their members and are considered trusted advisers. There’s a sense of loyalty. Most of them have kept the servicing, so that member loyalty stays in good shape."
The credit unions have offered counseling sessions to prepare members for homeownership, which seems to help newcomers understand what they’re taking on. Another factor is that the federation buys loans that have been seasoned for at least one year and are performing well. To back that up, the federation itself does a full underwrite, including a credit check, before buying any loan.
In 2005, the federation kicked off the program to help more low- and moderate-income families become homeowners. The idea was for community development credit unions to write mortgages and sell them to the federation. After seasoning the portfolio, the federation would sell the mortgages on the secondary market.
"We purchased some mortgages as a pilot," Fowlkes explained. "We had put the program together, but we needed to see how it would work. At that time there were a number of secondary market players out there."
However, those players were primarily interested in scooping up large pools of loans from lenders with strong histories of mortgage origination plus significant capital. Many community development credit unions didn’t make the cut.
So the federation acquired $8.6 million in mortgages from member credit unions. Then the recession hit, with turmoil in the mortgage market. Even as a recovery is evidently under way, like most mainstream credit unions the NFCDCU feels the price offered by the secondary market is below what it should be. With few other attractive options, it makes sense to simply hang onto those mortgages and collect the income. The portfolio today stands at $6.5 million.
"We have a very strong pipeline for 2011," Fowlkes said. "A lot of credit unions are looking to sell. Many are maxed out in terms of their loan portfolio. They can’t originate more mortgages until they dispose of some they already have. So we’ve noticed a lot of interest lately. We will continue the mortgage program, and I think it will get stronger."
Fowlkes indicated that a number of community development credit unions do have relationships with CUSOs, and the federation offers referrals to credit unions seeking a mortgage CUSO.
All that doesn’t mean there aren’t any challenges. Fear is a factor. Many low- and moderate-income potential homebuyers, even though they may qualify for a home purchase, are nervous about getting into something they worry could overwhelm them. That is compounded by continued high unemployment and underemployment. There aren’t as many down payment and homeowner assistance programs to help them as there were before the economy soured.
"Credit is also a very major issue," Fowlkes continued. "A lot of people’s credit has suffered in the recent economic environment. Credit unions are generally more lenient, but a member still must show some type of favorable credit history. They may not need 800 FICO scores, but they require something to show they are capable."