Secondary Mortgage Options Offered by New CUSO
The prospect of credit unions building a stronger housing finance industry received some good news last week when a new CUSO, Mortgage Liquidity Solutions, announced its first sale of participations in CU-originated mortgage loans.
MLS, founded by five large credit unions in 2011, announced it sold a pool of $140 million in mortgage loans from the Affinity Plus Federal Credit Union in St. Paul, Minn., on Jan. 17.
Affinity Plus is one of the five founders of the CUSO, along with Bellco CU, Public Services CU, San Antonio CU and Teachers CU.
“We have experienced record growth in our residential mortgage demand from members,” said Brian Volkmann, Affinity Plus, vice president of lending. “We wanted to develop a relationship with a partner that understood our lending philosophy and could provide additional options for the sale of our loans. Mortgage Liquidity Solutions understood our goals and brought the needed experience and contacts. We are looking forward to using MLS for additional sales.”
Affinity Plus CEO Kyle Markland agrees. “We see the need for the services provided by MLS,” he said. “In the short term, MLS was able to complete our transaction. But more importantly, they helped provide us with new liquidity options so that we could continue to meet the needs of members. Strategically, we see MLS as an important partner to assist us with the development of alternative outlets for our loans given the uncertainty surrounding the GSEs.”
Amy Sink, chief financial officer at Teachers Credit Union in South Bend, Ind., said this type of transaction is exactly what the MLS founders had in mind.
“We believe that by working together through MLS to facilitate this type of transaction, we can build the needed competencies to open new and alternative avenues into markets that will reduce our reliance on correspondents,” said Sink. “This will solidify credit unions’ position as a valued lender to members.”
In addition to helping credit unions sell participations in their mortgage loans, the CUSO also seeks to help credit unions establish warehouse lines of credit for their mortgage programs, according to CUSO President Judy Sandberg, who said it was an effort to fill that need after the upheaval in corporate credit unions that lead to the effort.
“After what happened at the corporates, it became clear they were not going to be able to fill that niche anymore and that credit unions still had a need,” Sandberg said.
The five credit unions have closed the CUSO to any other CU owners, but Sandberg emphasized MLS was open to other CUs, whether as investors buying participations or by selling participations.
Sandberg said MLS would start by looking to within the credit union industry to help CU's sell their mortgage loans, but she emphasized that the CUSO's hoped to eventually position itself and credit union mortgage loans for the broader capital market once the GSEs, Fannie Mae and Freddie Mac, are reconstituted.
“We believe credit unions have a great product in their mortgage loans,” Sandberg said, “one that many potential investors don't know enough about. We hope to eventually be able to offer the loans to investors in the broader capital market as well.”
Alan Bahr, director of secondary markets for CMG Mortgage Insurance, applauded the news of the MLS sale and said that the CUSO was one of what he hoped would eventually be a broad based effort among credit unions to step into a line of business abandoned after the corporate credit union melt down.
“There has been a need for both warehouse lines and loan participation services,” Bahr said, recalling that U.S. Central Corporate had, for a time, offered similar services through a subsidiary called Charlie Mac. U.S. Central did not return calls about Charlie Mac's current activity, but a website about the organization said it was no longer purchasing loans.
Bahr said efforts like MLS would help to bridge the gap between larger credit unions that tend to do more mortgage deals in a given month but feel under liquidity pressure to fund them and smaller credit unions that might not make as many mortgage loans but have liquidity they would like to invest.
“There is a question of diversification as well,” Bahr explained. Without having similar options, credit unions wind up investing too much in auto loans or other single vehicles instead of spreading out their risks more widely.
TMG Financial Services, the credit card portfolio purchasing and investment arm of The Members Group, offers warehouse lines of credit to mortgage CUSOs but does not offer participations.
Robert Dorsa, president of the American Credit Union Mortgage Association, also welcomed the news, noting that credit union leaders in ACUMA and other venues had been discussing a similar approach to secondary market questions.