GREENSBORO, N.C.-Don't let habit steer members into one type of mortgage, when another would be better.
"As we start the new year, the first thing I would have credit unions think about is putting the focus on the borrower and making sure the borrower is placed in the right loan," said Kim Garland, COO with United Guaranty, a provider of private mortgage insurance based here. "This means the loan that makes the right economic decision for him or herself."
The decision to go with a conventional mortgage versus an FHA loan is one consideration a CU has to make, as is choosing a provider of PMI. He noted different companies charge different rates depending on the circumstances of the loan, "so putting a borrower in an FHA loan because the credit union is used to doing FHA loans" might not be the best situation for the borrower, he asserted.
"There are a number of times when borrowers are put into certain loans where another loan would be better for them," he said. "We work to make information available to pick the right loan. Credit unions make it a priority to do what is right for their member, so it probably is an area of focus already, but perhaps they should review if every single borrower is getting the right type of loan."
Hidden Liabilities
As CUs plan their lending campaigns for 2012, Garland urged them to fully understand risks, exposures and liabilities. He said many times there are "hidden liabilities" that come back to bite lenders that are not careful.
"We have a lot of experience over the last couple years in handling loans that had defects or the risk quality was poor," he recalled. "It is important for each lender to examine their underwriting models and decide if the lender should do the underwriting itself or use a delegated underwriting model through a mortgage insurer."
According to Garland, on average, loans that go on the books through a delegated underwriting model place $500 in liability exposure on the books of the originator.
"If I was running a credit union and I could eliminate $500 in exposure through a process that takes about four hours, I would do so," he said. "It is safer for the credit union to do a full-file underwrite by the mortgage insurer."
Garland cautioned that in 2012 CUs must do their due diligence on all business partners, reminding that in 2011 two mortgage insurers violated regulatory risk-to-capital requirements and were declared ineligible to write new business.
"This is not unique advice, but there may be more troubles ahead for mortgage insurers in 2012 so it is important to do through risk analysis," he said.
