WASHINGTON — Credit unions seeking to write more mortgage loans should focus on lending more for their own portfolios, streamlining and speeding up their mortgage underwriting process and reaching out more comprehensively to Realtors.
And they should try to accomplish these changes while also enduring one of the most confusing regulatory environment in history.
Those were conclusions drawn from a workshop that placed mortgage professionals from law, data and real estate firms in the same room as roughly 40 CU real estate executives from about 25 credit unions dedicated to building and improving their mortgage lending programs.
The American Credit Union Mortgage Association sponsored and hosted the meeting, which President Robert Dorsa said looked a lot like the original meetings that established the association 15 years ago.
Since then, the association has grown, Dorsa said, but only a minority of credit unions offer mortgages at all and even a smaller number have really become mortgage lenders, Dorsa said.
"We wanted to take our show on the road, so to speak, to try to both help credit unions understand and cope with changes in the industry as well as to help light a fire under CUs that still have not made mortgage lending a key part of their member services," he said.
Tracy Ashfield, a CU mortgage consultant who has been working part-time with ACUMA, said that the changes in the regulatory environment were effectively making it more difficult and expensive for a credit union to just write the occasional mortgage for its members.
Previously, she pointed out, a credit union could outsource big parts of the process to a third party, such as a CUSO. Now more parts of the process, such as those relating to the Home Mortgage Disclosure Act, cannot be outsourced because of compliance requirements.
And if a CU is going to have to comply for the current 12 mortgages per year it writes, she observed, it made more sense to actually start up a mortgage lending program and become a mortgage lender.
But as almost all of the meeting's attendees had already started mortgage programs, much of the discussion focused on how the mortgage market has changed since the residential finance crisis and subsequent economic downturn.
Thomas Popik, a research director with Campbell Research and Inside Mortgage Finance, presented data that described how sharply things had changed in mortgage lending.
The first big change has been the decline in refinance lending, a longtime staple of CU mortgage operations, Popik said. And that left a somewhat smaller and sluggish market for purchase money loans. The market for these loans had been propped up by a federal tax credit for new home purchases, Popik said, but then slowed steadily after the tax credit expired. It had also been hurt by sheer numbers of economically distressed properties that had come flooding into the market, he said.
This large bulge of economically distressed properties forced down prices and, perversely, often generated problems as the objects of mortgage loans, he explained.
The large percentage of distressed properties in the market has offered specific challenges to credit unions, Popik explained. On short sales, for example, once mortgage servicers consent to taking a short sale, they often require that the financing for the sale be arranged and closed within 30 days, a requirement that often means deals fail to consummate.
Additionally challenging is the percentage of distressed properties that are sold without any mortgage at all, either because the purchasers, which are usually investors, choose to use cash or because the damaged REO is so impaired that it could not anchor a mortgage loan.
But where distressed properties put obstacles, they also provide opportunities, Popik said.
Credit unions that control their underwriting and can meet the 30-day limit on short-sale financing, for example, could find a strong market for their services, as could credit unions that reach out to investors seeking to purchase REO.
"If credit unions could shorten those times because they control the underwriting process and time lines, they could obtain a significant market advantage in the REO market," Popik told the group.
Credit unions being able to control their mortgage underwriting led to a discussion of the growing desirability of writing mortgage loans for their own portfolios and not to necessarily sell on the secondary market.
As long as a credit union kept track of its balance sheet issues and worked to mitigate any interest rate risk, portfolio mortgage lending allows credit unions to offer their members more customized and individualized mortgage loans as, in general, mortgage lending is becoming more standardized and commoditized.
Terri Murphy, president of Terri Murphy Communications and a Realtor, led the workshop through exercises designed to help participants understand the different ways their mortgage programs needed to change in order to be ready for the different types of members they will need to serve.
Examples included ways to use social media to provide greater transparency about both the mortgage product itself and the mortgage underwriting process.
She also discussed credit unions' need to make not only their members aware that they offer mortgage loans, but Realtors as well, as they play a key role in deciding where a home purchaser will turn for mortgage financing.
There is evidence that homebuyers will go with the mortgage finance firm that their Realtor recommends, Murphy said, acknowledging that even in the age of the Internet, Realtors still have a role to play in the real estate purchasing process.
"No one can know a locality like someone really there," Murphy said. "A screen can show you what a house looks like and what it has in the way of amenities, but a screen is not going to know that the school two blocks over lets out at three and when it does the entire neighborhood traffic locks up," she added.