Co. Issues Guidance On Mortgages As Rates Rise

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CU National Mortgage has issued two recommendations to credit union clients. The first guidance message concerns portfolio management and loan sales; the second item refers to the "pressing need to focus on the purchase money mortgage and adjustable rate mortgage markets."

According to CEO Michael J. McGrath, Jr., recent interest rate increases provide an example of the decline in portfolio value that has taken place since April 1st. He noted that while a $1-million pool of 5.75%, 30-year, fixed-rate loans would have yielded a gain on $10,000 if sold on April 1, 2004; the same loan sale would have netted a loss of $7,500 if transacted two weeks later when rates rose by one-quarter percent. "With rates expected to continue their gradual increase, even modest upward movement could significantly impair the value of the credit unions' real estate portfolios," the company said.

The company is also advising its clients to focus on the purchase money mortgage and adjustable rate mortgage markets in order to preserve future real estate loan business.

"The value of both a credit union purchase money mortgage and an affordable ARM loan must be effectively and consistently conveyed to the members," the company added.

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