FORT MYERS, Fla. - Credit unions may not have made the mortgage mess, but they’re part of the clean-up crew, and that is giving them new power when dealing with government sponsored enterprises like Fannie Mae and Freddie Mac.
“You’re seeing the Federal Reserve say it’s going to regulate underwriting. It’s a different world,” said Eileen O’Grady, president of Elliott Bay Associates, Seattle. She noted that where Fannie Mae and Freddie Mac were becoming anachronisms during the housing boom, they are now becoming increasingly important as some of the private label securities have proven to be troublesome.
“The single most important opportunity for credit unions today are the gurantor fees with the GSEs,” she suggested. “The key: these fees are negotiable.”
The challenge, according to Jim Toliver, executive director of advisory services at MembersUnited’s CUSO, Balance Sheet Solutions, LLC, in Warrenville, Ill., is explaining why credit union loans perform better and why credit unions, therefore, deserve better pricing. “When the GSEs talk with JPMorgan, they are price-takers. When they talk with credit unions, they are price-setters,” he said. “We need to change the rules of engagement.”
Toliver and O’Grady teamed up for a discussion of the impact of the mortgage meltdown on CUs at CUNA CFO Council’s Conference and Roundtable here.
“It’s like Kurt Vonnegut’s ‘Ice Nine,’” O’Grady suggested. “In ‘Ice Nine’ someone creates a way to chemically freeze a pond or body of water so an army can march across it. The unintended consequence was it froze an entire river and then the entire surface of the country. The mortgage crisis is like that; there’s a viral quality to it.”
One thing O’Grady cautioned against: taking the news related to mortgages and the economy at face value. “A recent report showed that home building was up,” she said. “But dig a little deeper, and you see that the homes being built were all rental and multi-family housing.”
The impact of that, she reminded goes beyond how credit unions and consumers react.
