Two Strategies To Grow Mortgages

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MADISON, Wis.-One person has two suggestions for the credit union community when it comes to increasing mortgage lending.

"I'd like to see credit unions create a new mortgage," suggested Dave Colby, chief economist with CUNA Mutual. "Today, someone who is 20 years old will have 10 jobs over the course of his or her career, and that means they're probably going to move-so do you really need the security of a 30-year mortgage? People are paying premium to lock in a rate, but if you know you're going to move a few times, why would you pay that premium for security you don't need?"

On the refi side, Colby dared to dream even bigger. "I'd love to see credit unions go nuts and find a niche in the refi market-people in their 50s with 70% equity in their homes. You do a refi, lower their rates with a shorter term. It pretty much takes borrower, collateral and duration risk right out of the equation."

Colby's suggested strategies come at a time there remains much doom and gloom over mortgage lending, even though among credit unions there has been a 24% increase in dollar amount and 22% growth in the number of first mortgages.

Colby cited those numbers-gleaned from Callahan & Associates' First Look Data for Q1 2011-suggesting that even without his proposed loan products, credit unions are among the bright spots in an otherwise dreary market.

"There are two aspects to mortgages-the actual originations, versus what credit unions choose to hold," he said. "Credit unions are selling half their originations so they are avoiding the interest rate risk."

Even so, it's not all sweetness and light for credit union mortgages. "One of the frustrations for credit unions is that the underwriting for the secondary market is very tight," Colby related, noting that issues with appraisals not panning out also continue to be a real problem. "Credit unions are afraid to portfolio these loans because they're concerned they'll be underwater if they hold on to them."

Moreover, regulators are very concerned about concentration and interest rate risk. "NCUA says, 'don't hold mortgages, don't hold mortgages,'" he said. "But the spreads to be had on mortgages if a credit union can hold some of those, that's what builds up capital."

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