A firm marketing an innovative housing finance loan hopes bothcredit unions and banks may eventually belong to a network to helpmove those loans.

Mortgage Harmony Corp offers a system through which creditunions and other financial institutions offer housing and autoloans that allow borrowers to periodically reset their interestrates without refinancing.

It is also building a network, according to a company executive,which the firm hopes will one day link banks selling these MortgageHarmony loans to credit unions that would buy them.

“We're calling 2014 the year of harmony,” remarked MortgageHarmony CEO and Co-Founder Keith Kelly.

Read more about the Harmony MortgageLoan:

• PenFed Debuts Mortgage Rate Reset
• GTE Financial Helps Members Seek RefinanceHarmony
• New Loan PutsBorrowers, Lenders and Investors in Harmony

He explained the firm believes mortgage bankers have the keyconnections with realtors and consumers and can start making largenumbers of Mortgage Harmony loans. And, he added, credit unionshave the liquidity and demand to buy the loans.

Kelly and other executives have high hopes for the networkbecause the Mortgage Harmony loans, they argue, are a much betterinvestment vehicle than conventional loans. Where conventionalfixed rate mortgages are often paid off and refinanced every fiveto seven years, often away from their originators, a MortgageHarmony loan need never be refinanced away from the issuingfinancial institution.

Kelly said the firm has buyers, at a premium, for MortgageHarmony loans credit unions might not want to buy. However, he alsosaid Mortgage Harmony believes the network will be popular withsmall- to medium-sized credit unions that have the liquidity to bepart of the mortgage industry but lack the staff, means orinfrastructure to issue many mortgages on their own.

The Network may also offer loan participations, Kelly said.

But one early problem confronts Mortgage Harmony. Whilethe company now counts roughly 12 participating credit unions,including the third largest in the country, PenFed, no banks have launched the product.

“We have shown the product to community bankers,” Kelly said,“and they often say 'this is the future of the mortgageindustry.' But when we ask them if they are interested intrying it out, they say something about wanting to see how themarket reacts to it first,” Kelly said.

Kelly predicted Mortgage Harmony loans, while very popular in awhat many people viewed as a low or falling interest rate market,the lons will prove even more popular in a rising rate market. Forexample, he said, a borrower with a fixed-rate loan that is set toreset after five years might decide to reset the rate slightlyhigher after only three years to lock in a still relatively lowrate for another five years. “We know that many fixed rate loanswith five year resets never make it five years,” Kelly said. “Theyusually refinance at three years because borrowers get nervousabout the cap being triggered.”