Executives from different parts of the credit union industry are hard at work to build credit unions’ share of the U.S. mortgage market even higher than the record 8% that credit union’s achieved in the first quarter of this year.
Callahan & Associates went on the record last month urging credit unions to pool their housing finance efforts to move credit union’s share of the housing finance market to 20% by the year 2020.
Jay Johnson, executive vice president at Callahan, said the efforts to reach that goal are spread across different parts of the industry, including working with credit unions to get them to build or even start housing finance programs and looking outside the industry for possible sources of additional housing finance funds.
Johnson said it was difficult to say which of the two efforts is the more important but gave the edge slightly to getting more credit unions to issue mortgage loans. Until the loans are issued there will be nothing to offer to investors.
He added that changes in the current national housing finance market have made progress in both getting more credit unions to issue mortgages and finding alternative sources of housing finance more pressing. Both of the two large mortgage issuers that dominated the housing finance market in 2007, Countrywide and Washington Mutual, have disappeared and independent mortgage brokers that presented local competition have also gone, Johnson pointed out, leaving a market vacuum.
“I think we have gotten past the point where most Americans weren’t aware that credit unions generally offer mortgage loans,” Johnson said. “Now, we have to get to the point where more credit unions specifically offer mortgages.”
On the one hand, Johnson said, the problem appears truly daunting. According to Callahan’s data, roughly 84% of credit unions either do not offer mortgage loans or issue very few each year and roughly 16% do the bulk of credit union mortgage lending. “Credit unions need to expand the number offering mortgage loans if the industry plans to hit 20% of the market,” Johnson said.
But on the other hand, the numbers of different housing finance CUSOs and other institutions, combined with advances in technology have made it easier and less expensive than ever before for a credit union to start offering mortgage loans, if not on its own at least through a CUSO or other third party.
Robert Dorsa, president of the American Credit Union Mortgage Association, agreed that more credit unions need to offer housing finance programs but added that many of the ones that already offer them need to hire more experienced staff to improve their existing programs. In both instances, Dorsa noted, working with a housing finance CUSO could help a credit union overcome the expensive staffing obstacle.
Judy Sandberg, president of Mortgage Liquidity Solutions, said her housing finance CUSO is hard at work on developing different vehicles that could be used to bring credit union issued mortgage loans to the capital markets, particularly ones which could provide an alternative source of housing finance to the now conserved government-sponsored enterprises Fannie Mae and Freddie Mac.
“We are actively working with investors who are looking at credit union mortgage loans..and I think they would be very interested in an investment vehicle based on those loans,” she said.
Sandberg explained that finding sources of funds in the capital markets is crucial to both help credit unions have sources of housing finance in the face of continued uncertainty about the GSEs and to provide them a way of financing mortgage loans that might not conform to the GSE’s rules for sale in their mortgage market. Being able to offer and then sell mortgage loans that do not conform to Fannie Mae or Freddie Mac guidelines could be crucial to credit unions social mission of helping members of modest means achieve their financial goals and being able to do that means being able to sell those loans, she said.
Sandberg would not predict when MLS might have an investment vehicle backed by credit union-issued mortgages ready for investors, but she said the CUSO was working with steady growing number of potential investors and giving them an unprecedented level of data about the loans in an effort to be as transparent as possible.