As the eventual reduction of Fannie Mae and Freddie Mac’s influence in the mortgage market nears this spring, credit unions across the country are preparing for changes and possibly challenges.
While most credit unions are less than thrilled with Fannie and Freddie’s role subsiding, many have already been prepping for the mortgage giant’s slow exit for some time.
National Institutes of Health Federal Credit Union’s ($540 million, Rockville, MD) CEO Juli Anne Callis says that her credit union is in the business of meeting the members’ mortgage needs no matter what happens.
“Nobody knows exactly what might happen, but we know we want to be in a position to offer our members mortgage loans so we need to be ready,” she says.
Although NIHFCU continues to sell 30 year fixed mortgage loans to Freddie Mac and Fannie Mae, other credit unions have already turned to investors.
David Kexel, VP/Marketing, Arizona Central Credit Union ($400 million, Phoenix, AZ) said that he didn’t have any comments on the topic as his credit union primarily deals with investors.
Callis says, “We’re all preparing to work with whatever private investor structure re-emerges. Are those investors starting to percolate up? We’re hearing discussions, but we’re not seeing it yet.”
Bill Hampel, CUNA’s chief economist expressed some concern about what would happen once Fannie and Freddie started winding down.
“Credit unions individually are fairly small in this business," he said. "But if there's no publicly supported vehicle to secondary markets, each credit union would be so small that they would not get good pricing or access. And that would cost credit union members."
Hampel adds that CUNA has been in touch with the Treasury Department about Freddie and Fannie’s future and also discussed how credit unions are already formulating contingency plans such as possibly working with a credit union service organization (CUSO).
Contingency plans will be important as many credit union members turn to their credit union first for mortgages.
USF Federal Credit Union ($390 million, Tampa, FL) member Holly Hills said in a testimonial, “My husband and I have been credit union members for over twenty years. Through all phases of our life, through mortgages and car loans, we have relied on and benefitted from the personal service that USF Federal Credit Union provides.”
According to IBM Southeast Employees’ Federal Credit Union ($800 million, Boca Raton, FL) member Samuel Boykins, his credit union’s mortgage department provides unbeatable service. “Thanks to the best home loan department ever, I was able to move into my new home in record timing. This was my third time purchasing a home, but I can say this was the best customer service experience I have had.”
CUSOs Could Play a Pivotal Role
One possible solution for credit unions is to tap into its CUSO. Callis says that she hadn’t planned on considering CUSOs but is now rethinking the idea.
However, Mark Bostock president at Centennial Lending said that if Fannie and Freddie evaporate, he isn’t sure what will happen. His company provides CUSO services to small to medium sized credit unions. “It’s going to be tough if Fannie and Freddie go away because we sell to Fannie and Freddie as it is.”
Bostock is concerned that the extinction of Freddie and Fannie could lead to the mortgage industry being possibly turned over to the big banks.
“We’re hearing several different versions about what could happen,” he says. “We know it won’t happen overnight and I find it hard to believe that completely taking Freddie and Fannie out of the market would be good for the economy.”
He said that without a solid plan or specific information, it’s difficult to start getting too worked up about Freddie and Fannie’s demise. “There hasn’t been enough information released about what exactly is going to happen.”
He notes that while some credit unions may be tied to larger CUSOs able to possibly provide secondary support, small to medium sized credit unions may not have that option.
Mika Mills, president of Credit Union Financial Services says that a strong continued credit union prescence is important and that the industry is already seeing an increase in the percentage of mortgages originated and held in portfolio. “Stricter qualifying guidelines by the Government Sponsored Enterprises (GSEs) mean that many loans that would have been approved a few years ago, no longer qualify. These are solid borrowers who just miss loan approval because of one small issue.”
Mills adds that credit unions have stepped up to fill that void to continue serving their members. “We only see that continuing at an increasing pace should Fannie and Freddie cease to exist. As credit unions hold more of their members' loans, the member relationship will only get stronger.”
“Having a Credit Union Service Organization (CUSO) to work with allows credit unions to work together to hold more loans through participations or closed loan sales. Credit unions who do not originate sufficient loans to put on its books can purchase closed loans from other credit unions. Our CUSO gives them a one-stop shop where loans can be originated, processed, underwritten, serviced or sold.”
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