HIGHLANDS RANCH, Colo. -
As reported on www.cujournal.com on Dec. 7, among the effects would be the impact on the secondary mortgage market, where most of the mortgages have been sliced up and packaged as bonds that have been bought by investors, including many credit unions. According to the NCUA, credit unions held more than $26-billion worth of mortgage-backed securities at the end of the third quarter.
But credit unions could find themselves swept up in the broader response to lenders that made many of the subprime loans that have gone into default or threaten to go into default. That includes proposed legislation that would enact a variety of new controls and requirements for mortgage lenders.
“For the most part all of the legislation is in the consumer’s best interest which is the side of the issue that credit unions will gather,” said Steve VanSickler, legislative and regulatory compliance chair for ACUMA in Las Vegas, and SVP/chief lending officer for Red Rocks Credit Union here. “Having a duty of care, registering and licensing mortgage originators, even those from depositories, is not a bad thing.”
Effect On Hiring
VanSickler noted that some credit unions–now and in the future–will be hiring mortgage originators, including those who may have worked at lenders that made some of the problematic loans. “And that tracking mechanism could be very important in weeding out bad apples,” he said.
“Most credit unions use frontline staff to promote, or even take mortgage applications, and depending on what level of depth those persons interface in the application process will determine if they are the mortgage originator that signs the residential mortgage loan application,” VanSickler added. “In most cases it would be my guess that they would not be and as such should have to be licensed.”
One example of this VanSickler cited is the “promoter” example, where a member is directed to apply online or is referred to a centralized mortgage department.
The piece of federal legislation that is of most concern to VanSickler is House Bill 3906, the Mortgage Reform and Anti-Predatory Lending Act of 2007, “where a door will be opened to allow bankruptcy judges to reset the terms of a mortgage loan,” he said.
‘Significant Changes’
“While most credit unions retain their mortgages, most mortgages are sold into pools that create mortgage-backed securities, which many credit unions seek as investments,” VanSickler said. “Changing the terms of mortgage loans within a mortgage backed security could result in significant changes to the secondary market.”
VanSickler added that those changes could make it difficult for CUs to move pools of mortgage loans from their balance sheet.
“All in all, the pending federal legislative activities are going to make it very difficult for mortgage brokers to continue to do business from a cost perspective due to bonding, errors and omissions insurance requirements, continuing education, new compliance requirements and limitations on earning indirect income from loan-level attributes such as a pre-payment penalty,” he said.
VanSickler said that CUs can use this time to their advantage.
“Credit unions should be grateful for the free negative publicity that is being focused on other-than-credit unions as mortgage originators, and seize the opportunity to let American consumers know that a credit union is a great place to get a mortgage loan,” he said.
Dave Doss, vice chairman of the ACUMA board of directors, and CEO of Arizona State Savings and Credit Union in Glendale, said he is generally not in favor of government intervention, especially in the case of several proposed bills that would have lenders that originated the loans be able to walk free, he said, and would enforce fees for every borrower, which he called “unfair.”
“On the surface, I’d say one of the ideas I heard was similar to a (Resolution Trust Corp.) that would step in and purchase the subprime mortgage. I do think it would be good for the economy for something like the RTC to step in and help the general public,” Doss said. “Certainly everyone needs to be responsible for knowing what they are signing, but I do think there have been some questionable business practices.”
Credit Unions & The Super Bowl
Bob Dorsa, president of ACUMA, worries that the bills will be used more to further political agendas than as a way to actually help people.
“The plans only touch a percentage of the people,” he said, “hopefully what will work is the credit unions communication to the general public. It would be a great idea if we could do it collectively,” suggested Dorsa. “We should be advertising during the Super Bowl or the Olympics. I fail to see why we’re not just creative enough. We could do great things in the world, but until we make it into people’s living rooms, we can’t compete. I see that as a significant challenge for us. We have to tell our story.”
In hopes of reaching some sort of compromise, NAFCU has been instrumental in advancing the industry’s concerns on the mortgage bankruptcy bill, H.R. 3609, in the hopes of limiting the effect of any mortgage bankruptcy bill only to subprime, nontraditional loans. H.R. 3609 would allow homeowners to avoid foreclosure by filing for a mortgage restructuring under Chapter 13 of the bankruptcy code.
The provision would allow bankruptcy court judges to revise the interest rate, remaining value and maturity of the loan. The compromise on H.R. 3609 also would limit the mortgage bankruptcy option to existing subprime or nontraditional loans that are in foreclosure (see related story, page 1).
Not Perfect, But...
In a prepared statement, NAFCU said it does not believe the proposed bill is a “perfect” bill, “the adoption of this compromise is a significant step forward as it presents what we believe is a workable solution.”
“NAFCU has been working intensely with members of Congress and their staff to ensure that in their desire to find a solution for the subprime situation, they don’t throw the baby out with the bathwater,” said NAFCU President Fred Becker.
Becker said that recent discussions with NAFCU lobbyists, the Center for Responsible Lending, and Judiciary Committee staff have brought about this compromise.
Under the agreement, the definition of “nontraditional” loan would come from federal regulators’ subprime mortgage guidance, which applies the term to interest-only mortgages and adjustable-rate mortgages with payment options that can lead to negative amortization.
“We are delighted to have come to this compromise which affords consumers welcome relief from possible foreclosure but still protects the majority of credit unions loans,” Becker said. “At a time like this, the last thing we want to do is make credit harder to come by when people need it most.”
FOR MORE DETAILS
For more info on this story:
www.acuma.org
www.redrocks.org
www.azstcu.org
www.nafcu.org
