LAS VEGAS-With the fate of Fannie Mae and Freddie Mac up in the air, credit unions are being urged to pool their resources to create an alternative entity that can handle securitization and other functions currently fulfilled by the two government-sponsored entities.
Another reason for concern: big banks may emerge to fill any void created by Fannie or Freddie's absence, putting credit unions at a disadvantage.
Rudy Hanley, president and CEO of $8.8-billion SchoolsFirst FCU, Santa Ana, Calif., said he is concerned too many credit unions are simply waiting to see what happens to Fannie and Freddie-as options ranging from privatization to reform are discussed on Capitol Hill. He said life usually occurs while people are planning for the future, but leadership is "acting in times of uncertainty."
"We know this is a scale business so we need to act as a group," Hanley declared. "The opportunity is great for us, but we must have a plan irrespective of what happens to Fannie and Freddie. As credit union sizes grow due to mergers and other factors, there is an opportunity for credit unions to create their own secondary market."
Hanley's comments came as part of a panel discussion during the American Credit Union Mortgage Association (ACUMA) Annual Conference.
Kirk Kordeleski, president and CEO of $4.2-billion Bethpage FCU, Bethpage, N.Y., noted several credit union organizations are exploring the creation of a CUSO or other entity to handle functions currently filled by the secondary market. Both CUNA and NAFCU have been involved in such discussions.
"This is such a substantial issue for credit unions, because if large banks control the secondary market I will worry deeply," said Kordeleski. "The Fannie/Freddie model has worked well in terms of having standard processes and standard systems. We need to come together and figure out what we want. We need $1 billion in flow per quarter to create a secondary market."
John McKechnie, former director of public and congressional affairs at NCUA and currently SVP with Washington, D.C.-based governmental affairs firm Total Spectrum, said all regulators have become extremely risk averse in the wake of the financial crisis.
"Everybody is looking to avoid over-concentration," he said. "It is important for credit unions to participate in the regulatory comment process, but also keep in touch with Congressional representatives. The best avenue is to contact Congress, which can influence regulators.
What Will Market Look Like?
According to McKechnie, the fear he hears from his friends within credit unions is the new market may not be friendly to small institutions.
"Congress is holding hearings on the future of the housing market and lip service is being paid to keeping small institutions safe. I am worried about the lack of specificity," he lamented.
McKechnie urged credit unions to stake out a position and defend it.
Asked if a nationwide CUSO supplying a secondary market for credit union mortgages is feasible, SchoolsFirst's Hanley said his hope is by working together CUs can build an entity that will capture a "huge percentage" of the loans.
"I believe credit unions should have a secondary market and securitization process," he said. "Credit unions received a premium from Fannie and Freddie because they saw we had good underwriting, low charge-offs and non-existent delinquencies. The entity should be owned by credit unions to benefit credit unions."
Bethpage FCU's Kordeleski predicted CUs would struggle in an environment where there are a large number of options, which he said would be the case if the GSEs are privatized.
"I agree creating a mortgage lending business for the industry will be necessary to weather the storm. If not, my fear is a number of entities will be created and they will bid out several processors and we will lose scale," Kordeleski said.
