Secondary Mortgage Mkt. Launched By Federation
The National Federation of Community Development CUs last week launched its own secondary market for mortgage loans made by CDCUs under the Federation's CU Mortgage Center program.
The initiative is aimed at providing a market for the loans, many of which are considered subprime, and expanding much-needed liquidity for CDCUs to enable them to make more loans, according to Clifford Rosenthal, executive director of the federation.
The federation said last week they purchased the first loans under the program, three so-called ITN mortgages made to immigrant homebuyers by Self Help CU, for a total of $275,000. The mortgages purchased under the program are expected to be small, which is typical of CDCU loans, said Rosenthal.
"We're starting slow; buying different kinds of loans that may be more unusual than others," said Rosenthal, of the pilot stages of the program.
Purchases will increase both in size and scope as the project gets off the ground, said Rosenthal. "We're going to increase it in 2006," he said. "Expanding the number of loans and the type of loans."
Plans call for the Federation to buy up to $10 million of mortgages under the program and hold them inhouse for a year or more, then sell them off to interested investors, such as community development financial institutions.
Terri Fowlkes, former head of residential lending for Carver Federal Savings Bank, the largest minority owned thrift in the U.S., was named to head the secondary market project.
The secondary market program for CDCUs is the first of its kind. Self Help CU, one of the Federation's most active members, has been operating its own secondary mortgage market program for five years but that program is not aimed at CDCUs or credit unions, noted Rosenthal. The target of the Federation's project will initially be CDCUs, but will be expanded down the road to buy subprime mortgages from the Federation's mainstream credit union partners. "Our focus is very much credit union-specific," he said.
The projected was aided last year with a grant from the Community Development Financial Institutions program of $475,000, which is being used to create reserves for the program.
Plans For Expansion
Eventually, Rosenthal hopes to expand the program with a secondary market mutual fund program being launched by CUNA Mutual. Officials at CUNA Mutual said they have been talking with Rosenthal about creating a fund created by purchasing community development loans-similar to CUNA Mutual's fund now buying member business loans-then selling shares in the fund back to credit unions. That would expand liquidity in the market while keeping credit union-originated assets within the credit union movement.