Credit unions are being urged to keep a close eye on efforts to reform several aspects of the real estate and mortgage lending markets, including proposed changes to RESPA (Real Estate Settlement Procedures Act) and oversight of the secondary mortgage lenders Fannie Mae and Freddie Mac.
During, WesCorp's CU Outlook conference here, Lou Jennings, EVP-operations for Navy FCU; Steve Renock, EVP-financial services for Orange County Teachers FCU and president of its CUSO, OCTFCU Mortgage Co. LLC; and Kerry Oldenburg, director of product development for Prime Alliance Solutions, a mortgage technology and business practices provider, all had notes of caution for credit unions.
Jennings said RESPA reform-which seemed dead in March 2004-has risen again. Three roundtables on the subject have already been hosted by HUD, with representatives from NAFCU invited to attend the first and CUNA was invited to the second.
The stated purpose of the roundtables is "simplifying and improving the process of obtaining mortgages to reduce settlement costs to consumers."
Discussion topics included changes to the good-faith estimate, compensation disclosure for the mortgage broker's fee, a guaranteed interest rate, and a fixed-rate, guaranteed mortgage package.
According to Jennings, the majority of discussion concerned fees to mortgage brokers. The U.S. Department of Housing and Urban Development pushed to segregate out the fee, but brokers said realtor's fees and other closing fees should be treated in the same manner.
"Do we need RESPA reform? That's a good question," he said. "The short answer is: it depends. If the consumer gets the information needed, if the mortgage industry is not consolidated, then yes. But the good faith estimate is still under discussion."
With all three workshops concluded, people are waiting to see what happens next, Jennings said. "Attendees feel the option for the guaranteed mortgage package will go through," he said.
Reform or Restrictions?
Oldenburg pointed to legislation in Congress calling for greater oversight of Fannie Mae and Freddie Mac and said that while supporters have good intentions-specifically improving oversight of the two giant entities-"details are dangerous and not being paid attention to."
"If passed, these bills will impact credit unions' ability to manage their portfolios," she said.
The proposed legislation would create a single regulator for the secondary lenders, flexible regulated capital requirements and would attempt to ensure safety and soundness. "No one has a problem with these concepts," commented Oldenburg.
The problem, she asserted, lies in three provisions: the creation of a "bright line" between primary and secondary market activities, prior approval and portfolio elimination. If the three provisions are included in the final form of the bills, Oldenburg said they would result in CUs being dependent on banks or service providers for items previously available, a higher cost of financing due to a lack of standardization, a "huge risk" of stifling creativity and higher rates.
"Today, Fannie Mae and Freddie Mac buy mortgage loans and sell AAA debt. This attracts foreign funds. If this is restricted, where will the funds come from? Rates will go up due to supply and demand-there will be less money and more need," she declared.
Renock said the pressure on Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac represent an opportunity for credit unions. He said the 25 basis point minimum servicing fee is under discussion for the first time since it was put in place in the mid-1980s.
'Best Chance Ever'
"This is the best chance we have ever had to reduce the guaranty fee, because Fannie and Freddie will want our support in Congress," he explained. "Do extensive research on your book of business, come prepared with statistics from foreclosures, loan losses, and overall loan performance and negotiate. Guaranty fees should relate to quality, not volume."
