ELKHART, Ind. – Sunday’s federal takeover of Fannie Mae and Freddie Mac had an immediate impact on credit unions, many of whom took advantage of the shift in market sentiment by recommencing selling their mortgages on the secondary market.
“What’s going to happen is already starting to happen and that is we’re getting better pricing for our members,” said John Katalinich, chief lending officer for Inova FCU.
Katalinich, who ceased selling mortgages to Fannie and Freddie earlier this year when the two began assessing so-called adverse market premiums on loans they purchased, went back into the market on Monday and sold a pool of $10.5 million, about 150 loans, to Freddie Mac. “The pricing started to stabilize,” he told The Credit Union Journal yesterday.
The Inova executive, who sat on Freddie Mac’s advisory committee for four years, said his credit union and others have been driven from the secondary market because of the premiums – which they must pass on to members – and because of tight liquidity in the markets, which lowered the pricing on the mortgages. Katalinich, who deals with both Fannie and Freddie, said he hopes the new regime at the two companies will agree to lower or eliminate the surcharges, easing more secondary market sales.
Meantime, dozens of banks were watching in dread this week as the common and preferred shares, expected to be wiped out by the federal takeover, plunged to near zero in value, wiping out billions of dollars of their capital. Credit unions, which are not permitted to own stock, either common or preferred, in either Fannie or Freddie, were insulated from the shock.
In recent days, Citigroup indicated it could take as much as a $450 million hit, Wells Fargo $480 million and JP Morgan Chase more than $1 billion, from the wipeout of the Fannie and Freddie shares. PNC said it has an $80 million exposure, Astoria Financial $120 million and First National Bank of Jeffersonville (New York) $5 million, as an example of the wreckage caused by the federal takeover.
On the other hand, debt issued by Fannie and Freddie continued to rally this week, eliminating some losses by credit unions, who hold billions of dollars in Fannie and Freddie bonds.
