Non-QM Loans Present Opportunities for Credit Unions: Onsite Coverage
BOSTON — Loans that don’t comply with the Consumer Financial Protection Bureau’s qualified mortgage rules present an opportunity for credit unions, because they will represent about 25% of all mortgage loan production, said Barry Stricklin, vice president of real estate lending for the $2.7 billion Tower FCU.
The Laurel, Md.-based executive presented a breakout session on project management for new mortgage rules Wednesday afternoon at NAFCU’s Annual Convention at the Hynes Convention Center in Boston.
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“I’ve heard Bank of America say they aren’t going to make any non-QM loans, and I hope they do that,” Stricklin said. “There is an opportunity here to fill that void. I’d encourage you to be part of that lending world that says you’ll do it. You shouldn’t be afraid to stand behind your underwriting.”
However, he also said the decision to offer the loans hinges on interest rate risk and a credit union’s ability to effectively manage it on the balance sheet.
Stricklin said Tower has created a matrix of real estate loan products that evaluates each in regard to how they will be affected by the new mortgage rules, whether or not they will be purchased by GSEs, and if not, the effect on interest rate risk to hold them on the balance sheet.
In response to a question from the audience regarding a potential private market for non-QM loans, Stricklin said that Raj Date, the former deputy director for the Consumer Financial Protection Bureau, is in the process of building a firm that will create a secondary market for the loans.
And, he said, the GSEs may reverse or modify their decision to not purchase mortgages that don’t fall into the qualified mortgage category.
“It’s hard to say what they are going to do,” Stricklin said. “Twelve months from now, will they buy a 40-year loan? Because as rates go up, you’re going to reach a point where a 40-year product will be important for first-time homebuyers, and they’ll face political pressure to support that. So you may see GSEs decide to buy them.”
However, he cautioned, credit unions can’t count on an accessible non-QM secondary market or a policy change from Fannie or Freddie.
“You have to be comfortable that if you’re putting something in portfolio, you can keep it there. Sure, you may be able to sell it down the road, but there’s no guarantee,” Stricklin said.
Once the matrix is complete, Stricklin said, management should share the information with volunteers.
“If you’re going to start eliminating products, it will probably have to go to the board. And, even if you’re not going to eliminate anything, at a minimum at least present it to the board so they know what’s going on,” he said.
Rules that require new disclosures and additional statement requirements will make it impossible for credit unions that offer real estate loans to continue providing combined statements to members, Stricklin said.
That will mean additional costs, he said, but added that eSign Act rules can make the process less painful.
“What the CFPB decided is that these statements don’t have to comply with the eSign Act,” he said. “They will allow presumed consent, which means if a member has said they are OK with receiving statements electronically, you can assume they are also OK with getting these new statements electronically.”
The cost difference is significant, he said. At Tower, electronic statements cost $2 per member to deliver annually, compared to $9 for paper statements delivered by mail. That would mean $70,000 worth of annual savings if 10,000 could be delivered electronically, Stricklin said.
“So take advantage of that,” he said. “Because the eSign Act doesn’t apply, all members have to do is give a verbal okay to receiving it electronically. Use your front line people. Have them ask members about it. The more of that you can do, the less it will cost.”