A firm marketing an innovative housing finance loan hopes both credit unions and banks may eventually belong to a network to help move those loans.

Mortgage Harmony Corp offers a system through which credit unions and other financial institutions offer housing and auto loans that allow borrowers to periodically reset their interest rates without refinancing. 

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

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

Read more about the Harmony Mortgage Loan:

• PenFed Debuts Mortgage Rate Reset
• GTE Financial Helps Members Seek Refinance Harmony
• New Loan Puts Borrowers, Lenders and Investors in Harmony

He explained the firm believes mortgage bankers have the key connections with realtors and consumers and can start making large numbers of Mortgage Harmony loans. And, he added, credit unions have the liquidity and demand to buy the loans.

Kelly and other executives have high hopes for the network because the Mortgage Harmony loans, they argue, are a much better investment vehicle than conventional loans. Where conventional fixed rate mortgages are often paid off and refinanced every five to seven years, often away from their originators, a Mortgage Harmony loan need never be refinanced away from the issuing financial institution.

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

The Network may also offer loan participations, Kelly said.

But one early problem confronts Mortgage Harmony.  While the 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 mortgage industry.'  But when we ask them if they are interested in trying it out, they say something about wanting to see how the market reacts to it first,” Kelly said.

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