Credit union mortgage lenders came off a record breaking year in2009, but industry executives fear 2010 may not see the same sortsof gains.

“We reached almost a 5% market share in the third quarter, andthe data are not in yet for the fourth,” said Robert Dorsa,president of the American Credit Union Mortgage Association. “Weexpect that the overall numbers for the year will also be strong,but we want to help keep credit union mortgage efforts goings intothis year as well.”

Dorsa and other executives worry that a number of differentaspects that helped propel credit union mortgage efforts forward in2009 have either disappeared from the scene or changedsignificantly this year.

For example, credit union mortgage programs last year benefitedfrom falling interest rates, which helped spur mortgagerefinancing, as well as a widespread retreat from the market on thepart of many mortgage competitors. But this year Dorsa and otheranalysts expect to see stable to rising mortgage interest ratesthat will dampen the market for mortgage refinancing overall, thustaking some of the energy out of credit union's best mortgagemarket. Further, after having been left as almost the last lenderstanding in some markets, credit unions face reinvigorated mortgagecompetition this year, Dorsa said.

“We have already seen notices from major players in the marketthat they are hiring more mortgage brokers and more mortgageagents,” Dorsa said. “I expect there may be more people trying toget a piece of what may be a shrinking pie.”

Further, Dorsa pointed out that credit unions, like all mortgagelenders, are having to comply with new mortgage regulations and newrules governing the settlement process flowing from the Real EstateSettlement Procedures Act.

“If we look at the landscape minus the regulationsimplementation, this is a lot like 1995,” Dorsa observed. “Way backin the mid 90s, credit unions struggled with purchase money loansin the aftermath of the last decade's refinance frenzy. Thankfully,ACUMA has worked diligently building a high quality credit unionmortgage lending network and association geared for just thispurpose.”

But Dorsa stressed that neither he nor ACUMA believed creditunions should retreat from mortgage lending or conclude that sincethe market for mortgage refinancing might slow, they should layback on their mortgage programs.

ACUMA will continue to stress credit union cooperation andnetworking, a method of allowing credit unions to benefit from eachothers' experience in mortgage lending. The association will alsosoon release a checklist entitled “What Realtors Expect FromLender” to help credit unions gear to compete in the market for newmortgage loans as well as refinancing existing mortgage loans.

“There has never been a greater need for credit unions to bandtogether than now,” stated ACUMA Board Chairman John Reed, CEO ofMaine Savings FCU. “We anticipate much more competition for fewerloans. We have noticed major lenders already committed to hiringmore originators to compete in the trenches on Main Street in everycommunity,” he added.

Issuing mortgage loans insured by the Federal HousingAdministration and getting approved to offer FHA loans continue tobe areas that need credit union focus, according to Dorsa and otherexecutives. In the wake of the housing and mortgage crises, loansinsured by the FHA have becomes sharply more popular, particularlyfor loans headed for sale in the secondary market.

But Dorsa and other executives report that only a few creditunions, maybe less than 50 nationwide, and relatively few mortgageCUSOs are approved to offer FHA-insured mortgage loans.

Kathy Carlson, CEO of Members First Mortgage, a mortgage CUSObased in Michigan, reported that between 20% and 25% of themortgages the CUSO handled in 2009 were FHA-insured mortgages andsuggested that using CUSO's to help credit unions be able to issueloans with FHA insurance may be an important element for theindustry to use.

“Having sufficient volume can be one stumbling block to becomingan FHA-approved lender,” Carlson explained. “Going with a mortgageCUSO like Members First can help a credit union overcome thathurdle.”

But there are also signs that FHA is tightening up the lendingstandards for the loans its insures as well, making them moreexpensive in order to better manage its risks and potentiallosses.

Under the new rules, borrowers must pay an increased upfrontmortgage insurance premium of 2.25% of the loan amount. This is anincrease of 50 basis points from 1.75% previously.

FHA loans typically have a low down payment requirement of only3.5%, so borrowers must pay for mortgage insurance to offset thatrisk. Unlike private mortgage insurance, FHA borrowers are able tofinance the mortgage insurance, thereby spreading its cost over theloan term. Analysts estimate that increasing the MIP would add anadditional $1,447 to a $300,000 loan.

Further, the new rules require borrowers with credit scores ofbelow 580 to make a minimum down payment of 10%, up from 3.5%previously, and analysts have predicted this will effectivelynarrow the market for mortgages significantly. But others have beenmore optimistic, pointing out that while FHA has never had aminimum credit score for its loans, many lenders did and that theirlimits were usually higher than 580.

Despite the challenges that arrive with 2010, Dorsa remainedfundamentally optimistic about credit unions' mortgage prospects,pointing out that building a long-term mortgage business takes timeand commitment and that credit unions have both. He also noted thatthe increased interest in financial products that are good forconsumers also favors credit unions. The biggest obstacle, he said,maybe some credit unions themselves.

“Credit unions just have to decide that they can and should makemortgage loans,” Dorsa said. “That's the simple first step butsometimes the hardest one to take.”

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