CUNA Mutual Mortgage "Subprime" Product Puts Company in New Lending Market

MADISON, Wis. – Subprime lending historically has been a market credit unions have distanced themselves from. But now this market – the fastest growing mortgage market in the U.S. – that CUs have been reluctant to enter is being touted as an opportunity for CUs to lend to, and CUNA Mutual Mortgage has a new mortgage product designed specifically to meet borrowers’ needs. Tom Pisapia, CUNA Mutual Mortgage VP, secondary marketing said the company’s new “Subprime” product was designed in response to remarks CMM heard from their credit union clients about their needs for products for those of their members with lower credit grades. The CUs, said Pisapia, told him they were being forced to send these members to subprime aggregators because the credit unions couldn’t offer them alternative mortgage products. “It took us a while to fashion a product that could handle lower credit grades and allow CUNA Mutual Mortgage to retain the servicing rights,” Pisapia explained, adding that the servicing of subprime loans is “critical because of the dicier credit of the borrower. Rating agencies look to the servicer almost as much as the collateral itself.” The CUNA Mutual Mortgage VP explained that the big alternative mortgage loan securitizers such as Ameriquest Mortgage and Countrywide Financial do private label securitization and retain the servicing rights because the credit rating agencies require them to. “In all fairness, we’re not going to be able to do the lowest of the low credit grades, but we’ll be able to cover 60-70% of the loans that would be classified as non-prime loans,” said Pisapia. According to CMM, the subprime market has seen 25% annual growth over the last 10 years – from $35 billion in originations in 1994, to more than $332 billion in 2003. In putting its product together, Pisapia said CUNA Mutual Mortgage wanted a product with a competitive price that would have the nuances of other subprime products. Many subprime loans, he said, have fixed rates for the first two to three years and then become six month adjustable loans. They also carry prepayment penalties. CMM’s “Subprime” has no prepayment penalties and is a 30-year fixed loan. Pisapia says the rate is “slightly higher” than a 30-year fixed prime loan, but the “rate is commensurate with the risk.” All the Subprime loans are underwritten, closed and serviced by CUNA Mutual Mortgage. The loans use a standard automated underwriting system. “We tried to offer a competitive and fair product that meets members’ needs without opening the credit union up to too much risk. It’s also an opportunity for the credit union to retain the subprime member and not have to wind up sending them somewhere else where they’ll be charged higher rates and fees,” said Pisapia. So far, CMM has seen 200 loan applications from CUs for “Subprime”, and Pisapia said they’re in various stages including some that are being scored to others that have already been approved. -