Major mortgage lenders appear to be continuing their strategicretreat from the U.S. housing finance market, leaving credit unionswith a significant opportunity that they may not be willing or ableto take.

Major lenders pulling back from their mortgage operations is notparticularly new. Bank of America cut its share of the U.S.mortgage market to roughly 8.5% last October when it shut down itscorrespondent mortgage lending program with smaller banks. Then itand other mortgage lenders made news when they laid off significantnumbers of their leading loan officers and processors.

Further, as Robert Dorsa, president of the American Credit Union Mortgage Association, pointed out, thebig lenders still face waves of litigation stemming from themortgage industry meltdown and the mortgage-backed securitiesdebacle. They also face regulatory uncertainty that the rest of theindustry faces as well.

“It's not hard to understand why the big lenders might be coolon housing finance at the moment,” Dorsa said. “The mortgagemarket remains pretty dismal for the big guys. The bigquestion is how much of an opportunity does that present creditunions and whether or not they will take it.”

Media reports have cited analyses that show some of the regionalbanks, such as Fifth Third Bancorp and US Bancorp, have steppedinto the gap left by the larger lenders, but credit unions alsohave an opportunity–if they decide to either increase theirmortgage lending or start offering housing finance loans.

According to CUNA, more than 88% of credit unions with assets ofover $20 million, which collectively serve more than 95% of currentCU members, offer first-mortgage loans, many through relationshipswith outside for-profit firms or CUSOs that specialize inmortgages.

Yet the industry's share of mortgage originations still hoveredat 6% as of the end of the third-quarter 2011. This is a recordhigh, Dorsa acknowledged, but one that was particularly hard foughtand yet still feels somewhat tenuous.

This particularly frustrates Dorsa now because there are signsthe industry is starting to make real inroads into the broadermortgage market. More credit unions than ever before have beenreaching out to Realtors, streamlining their mortgage programs andusing them to reach out to their communities. But there are stilltoo many CUs that are almost hiding the fact that they offermortgage loans or are not offering them at all, Dorsa said,explaining that ACUMA discovers this anew each year when it takes abooth at the National Association of Realtors annual conference.

“Every year we routinely meet Realtors who say things like, ‘Oh,I love my credit union,’ and ‘Credit unions are great,’ but thenare shocked to find out CUs offer mortgages,” Dorsa said. “‘Mycredit union offers mortgages? I didn't know that,’ or ‘My creditunion offers mortgages? Since when?’ And it’s not just smallercredit unions, I have had members of Navy [Federal] say the samethings.”

But awareness is not the only obstacle credit unions canface in stepping up their mortgage lending, Dorsa explained,sometimes credit union leaders are just not familiar with housingfinance.

“We have people who in credit union leadership from the boardson down who cut their teeth on personal loans and auto loans andmaybe credit card lending,” Dorsa said. “They're just not sureabout mortgages and not sure they want to pull the trigger.”

MikeSchenk, vice president for economics and statistics for CUNAalso cited some of the same problems that impact other lending,such as increased costs of regulation and a lack of resources aspart of the problem.

“On the question of why more small [credit unions] don’t do thisI suspect that regulatory burden is a major reason, though staffresource limitations (lack of expertise on mortgages, mortgageinterest rate risk management and inability to pay to obtain thisexpertise) and a concern about the credit risk (one mortgagedefault for a small CU can be a big bottom line and/or capital hit)also are likely big concerns.” Schenk said via email.

Schenk also noted that the way mortgages are priced nationallycan serve to reduce the price advantages credit unions also have onother loans.

“One thing that prevents CUs from gaining more shares faster isthat mortgage pricing is determined in the (national) secondarymarket so the big pricing advantages CUs have on other types ofloans are not as obvious in the mortgage arena,” Schenk said.