The $3.9-billion Wescom Credit Union CU West Mortgage, a full-service retail mortgage CUSO, and merged it with CUSO Mortgage, which Wescom acquired in 2006. Jane Wood, Wescom's executive vice president and chief operating officer, shared the CU giant's assessment of the current situation in the mortgage market.
Credit Union Journal: What are credit unions doing to protect themselves and their members from the so-called "Subprime Mortgage Market Meltdown?"
Wood: Wescom has not originated subprime mortgages, and therefore has no exposure in its portfolio to the credit risk of these loans. As a credit union, we have always taken utmost care to avoid putting members into loans that were not suitable for them. Credit unions, unlike many traditional lenders, have historically been more accessible to their members and willing to handle financial difficulties on a case-by-case basis. Credit unions have always been more flexible in offering work-out programs that include loan modifications and extensions. Other lenders, while they have always offered these work-out loans in the past on a limited basis, are likely to become much more amenable to them as well.
CUJ: What can credit unions do to plan and prepare?
Wood: Whether big or small, credit unions nationwide should originate mortgage loans to members. Credit unions that do not have the resources to maintain a mortgage department can outsource the origination (and servicing) processes while still serving their membership. For example, CUSO Mortgage can manage their entire mortgage program so that it is transparent to the member. But whether a credit union does it themselves, or utilizes a mortgage, it is important that as an industry we continue to offer mortgages to our members and help to make home ownership affordable. Ensuring that members have access to mortgages through their credit union is the most direct way to protect them from unscrupulous and predatory lenders.
In order to do this, credit unions need to have an in-depth understanding of the current risks in their portfolios. They need to be careful when pricing for risk and they should re-evaluate the depth and extent of the current market turmoil and incorporate the results in their business plans.
CUJ: Should credit unions look at the current market as an opportunity? Should they develop "rescue" loans and other mortgage refinancing options?
Wood: Investors who usually buy mortgage-backed securities have retreated from the market because of the subprime market conditions. As a result, lenders have fewer channels to sell the loans they originate, even for prime loans. Additionally, mortgage lenders have tightened their loan underwriting and overall quality standards in response to the disruption in the credit markets. All of this means there is less credit available in the marketplace and fewer options for borrowers in need of a mortgage.
Therefore, we think now is a great opportunity for credit unions to provide mortgage liquidity for their credit-worthy members. Credit unions have not acted like banks and mortgage companies by putting their members in risky loans they could not afford. Consequently, most credit unions are not suffering from high delinquencies and foreclosures on their loan portfolios and don't have to raise their interest rates to compensate for bad loans. Credit unions can and should make mortgage financing available to their members at competitive rates-which is what we continue to do at Wescom. We, along with other credit unions, are a great source of mortgages during the existing credit crisis. Our message to our members is their credit union has not been impacted by the subprime crisis and we are ready to meet their mortgage needs. Development of any instrument such as a "rescue loan" or a "quick fix" must be done cautiously to mitigate compromising the quality of our portfolios. It is important to understand the adverse selection that can surface in these conditions and there would be significant risk in simply rewriting true subprime loans.
CUJ: What are banks or other competitors in your market doing?
Wood: According to a front-page article in the Aug. 20 edition of National Mortgage News, subprime and alternative-A loan production has basically come to a halt, and the prime jumbo mortgage market has slowed to a trickle. It stated, "Agency, government and some of the biggest private players, particularly bank portfolios, remained to support conforming and jumbo mortgage origination-with the latter pricing at relatively high rates compared to the former, market participants said."
The article also said mortgages had to be "squeaky clean" to get purchased or funded, and that "anything anyone can come up with as an excuse" not to buy or fund a loan was being used as a reason to not commit to deals. Many lenders are foregoing the portfolio programs and shifting to more traditional mortgages such as FNMA, FHLMC and FHA. FHA volumes have increased considerably due to the market shift away from sub-prime as lenders revert back to the safety of government-insured product. FNMA and FHLMC are seeking to raise their loan limits so that they can better help the markets during this period of turmoil.
With that said, many lenders are laying off staff or simply closing. And most have raised their jumbo loan interest rates. Based on Wescom's competitor pricing surveys, all our targeted competitors have higher jumbo rates, with a few big money center banks being the most competitive. Wescom has not adjusted rates to our members and has reinforced the message that we are available to meet their mortgage needs.
