The bulk of credit union and CUSO mortgage programs will see minimal impact from Fannie Mae and Freddie Mac limiting the secondary market to only qualified mortgages, according to credit union and CUSO executives.
However, credit union’s ability to offer more tailored housing finance loans or some to lower-income members may be restricted by the move, other executives argued.
The two government-owned housing finance giants announced their regulator, the Federal Housing Finance Administration, had ordered the move May 6.
Housing finance executives from both credit unions and CUSOs reported that their programs almost overwhelmingly wrote mortgages that conform to Fannie Mae and Freddie Mac’s automated underwriting standards and thus were qualified mortgages already.
Victor Patroni, CEO of Mortgage Markets, which provides housing finance services to 25 Connecticut credit unions, reported that his CUSO writes mortgages that conform already to Fannie and Freddie underwriting standards and only rarely underwrite loans that don’t. For example, a very few of its member credit unions have needed a mortgage loan underwritten with a term of longer than 30 years and those loans would no longer be allowed to be sold on the secondary market beginning in January 2014.
“I think we might have underwritten five [40-year term] loans in the last five years,” Petroni said. “They’re just not a big part of our business.”
Bill White, vice president of residential lending at the 85,000-member $1.2 billion NASA Federal Credit Union said his credit union did make loans that do not conform to Fannie and Freddie guidelines and would continue to do so but would keep those in its own portfolio.
NASA is one of the credit unions that has begun offering no money down housing finance loans using careful underwriting. Those loans currently cannot be sold to Fannie or Freddie.
Paradoxically, White said there was a chance that Fannie and Freddie by taking only qualified mortgages might open the way for others to start marketing loans that are not qualified but solid credits.“We have been watching developments in that space for some time and now we might see that accelerate,” White said.
Keith Pipes, executive vice president for finance and financial services for the 206,000-member $2.5 billion Wescom Credit Union, said his credit union and its housing finance CUSO, CUSO Mortgage Inc., were still evaluating the change.
“I am sure it will have some impact, probably restrictive, on our operations, but we just don’t know yet how much of an impact it will have,” Pipes said.
Pipes said that the Obama administration and the GSEs were sending mixed messages to the housing finance industry, urging credit unions on the one hand to make more housing loans to more consumers but, at the same time, appearing to restrict their ability to manage those loans and sell them if need be.
An executive with a Midwestern credit union that also has a housing finance CUSO agreed that while the change’s impact might not yet be clear, it could effectively restrict some credit union lending.
Tim Mislansky, chief lending officer at the 248,000-member $2.6 billion Wright-Patt Credit Union emphasized that the credit union and its wholly owned housing finance CUSO, myCUmortage, had not yet finished reviewing all of the Consumer Financial Protection Bureau’s new mortgage regulations. But he said that qualified mortgage fee caps could wind up hurting lower income members who are usually buying homes in poorer housing markets or buying smaller, less expensive homes in wealthier markets.
Earlier this week, Fannie Mae and Freddie Mac announced that beginning in January of 2014, they would not purchase mortgages that have fees of greater than 3% of the loan amount.
“On a $200,000 plus loan, that’s $6,000 and more,” Mislansky observed. “Obviously, there is not a problem coming in under that. But on a $100,000 or less loan, that cap is $3,000 or less and that could be a limiting factor for some credit unions.”
Mislansky said that all the different things that are included in the fee definition have floors to them, prices and costs that cannot be driven lower, and that these prices and costs would make it very difficult to keep a loan’s total fees less than $3,000.
Last year, for example, he said that myCUmortgage, which has about 175 credit union clients around the country but primarily in the Midwest, originated $1.5 billion in housing finance spread across 11,000 loans. Of those, he reported, fully 40% were for $100,000 or less.
Mislansky said he expected that crewdit unions would probably still make these loans but then would likely have to put them in their own portfolios rather than sell them, right at the time when the NCUA has become more concerned about the levels of interest rate risk credit unions might take on in held mortgage loans.
“I am confident that they didn’t mean for this to be the outcome, but nonetheless I am afraid it will become one of the unintended consequences,” Mislansky added.