The 135,000-member Royal Credit Union has purchased the mortgage servicing rights to $600 million in mortgage loans from a local bank that the FDIC subsequently took over and sold to another bank.
The purchase added roughly 4,200 mortgage loans to the loans it already services.
According Mark Willer, chief operating officer at Royal, the credit union already services a loan portfolio of roughly $900 million worth of mortgage loans that have been sold on the secondary market through Fannie Mae or Freddie Mac. The purchase brings the total up to $1.5 billion.
“We have now come to a turning point in our business model that we need to make a change,” RiverBank, the bank that sold the mortgages, said in a letter to its customers before the FDIC shuttered the bank. “Realizing the importance of the local servicing, we have partnered with Royal Credit Union to transition the servicing.” The transfer of the servicing of the mortgage loans does not affect any term or condition of the mortgages.
RiverBank's remaining assets were purchased by the Central Bank of Stillwater, Minn., under an agreement with the FDIC to protect it from troubled assets that might have been lurking on RiverBank's books, according to announcements by RiverBank and the FDIC. Willer stressed that the servicing rights purchase took place before the FDIC moved in and that Royal expects the government agency and succeeding bank to fulfill the terms.
“We welcome these 4,200 mortgage customers to RCU,” said Charles Grossklaus, CEO of RCU. “Our commitment to staying local is strong and consistent with our vision to satisfy all of our members’ financial needs; we look forward to building relationships with these members so we can be there when they need their next financial product.”
Royal said the CU expects the servicing to transfer between the two institutions by Oct. 17.
Willer said the bank had sold the mortgage servicing rights in an attempt to improve its bottom line capital position before it was closed and that that discussions over the sale, including due diligence on the loans purchased and whether or not the loans had their documents available and up to date.
This was important because, according to local media reports, the 114-year-old bank had expanded its mortgage lending operations significantly during last decade and was faced with significant delinquencies and charge-offs due to the real estate downturn.
“It would be a reasonable question whether we had gone off and paid good money for a lot of questionably underwritten loans,” Willer said, “but we took steps to make sure that was not the case.”
Willer called the mortgage servicing portfolio that the CU had purchased the “jewel in the crown” of RiverBank's assets, adding that Freddie Mac and Fannie Mae had considered the bank a first-tier mortgage servicer, a recognition Royal shares as well. As all the loans being purchased had been sold to Freddie Mac, Willer said the government-owned mortgage giant had to approve the sale and that it had.
Willer also put the purchase in the context of a previous purchase, in 2009, from branches of AnchorBank, a troubled thrift headquartered in Madison, Wisconsin. The credit union had been particularly attracted to the loans because they were generally in the same area where the CU had former AnchorBank branches.
“They already fit our existing footprint,” Willer said.
Since these borrowers had to become members of the credit union in order to receive credit union services, Willer said that Royal opened savings accounts for each of them and deposited the $5 minimum. Each borrower also received a letter from the CU, welcoming them to Royal and explaining how the credit union handled mortgage servicing and offering other services as well.
“We didn't do this for the cross-selling opportunity,” Willer said, “but we wanted to make sure our new members knew what we could do for them,” he said.
In spring 2010, Royal CU purchased $177 million in assets and 11 branches from the ailing AnchorBank in Madison, Wis.