LAS VEGAS — Credit unions' growing mortgage marketshare is pushing new debate on what they should do with these new assets.
Bob Dorsa, president of the American Credit Union Motgage Association, for instance, is one who believes that fear over whether credit unions will be able to sell new mortgages into the secondary market may be preventing some loans from being made.
"It's not that there aren't solutions out there, we just have a little analysis paralysis here," he said. "I think they are worried about the risk, so if they don't make any loans they don't take any risk."
With record low interest rates, a wounded corporate system and GSEs on life-support, finding buyers on the secondary market is not always an easy task, according to CUNA Mutual economist Dave Colby.
But credit unions seem to be faring pretty well so far, holding 54% of the $13.9-billion in mortgages originated in Q1. Colby called on more CUs to follow that model, as they should not want to "hold long term, fixed-rate assets when you have historically low interest rates."
But selling every mortgage made to the secondary market as equally poor a strategy as placing in portfolio every loan orginated, said Tracy Ashfield, founder of Strategic Mortgage Solutions. While there is a need to assess interest rate risk, CUs still need to keep a close eye on the credit risk of their portfolios, Ashfield reminded.
"It is very, very important in your 2010 plan you give serious thought to your balance sheet," she said. "Those credit unions who kept some and sold some had a really solid strategy. Those that knew what they wanted to keep are not in the situation as those who kept 100%."
Credit unions' best bets in secondary channels are still Fannie Mae and Freddie Mac, said Dan Green, exec utive VP of Prime Alliance Solutions. He touted the 30-year relationship between CUs and the GSEs, and noted that the government takeover of the entities is providing enough stability over the short-term. Provided that credit unions are able to maintain or bolster their growing role in the mortgage marketplace, the secondary market could be a very different place in the long run.
"Just as we have to think differently about our purchase-money strategies, we have to think in new ways about our liquidity strategies, as well. The fates of Freddie and Fannie aren't yet decided, though they're likely to emerge from the financial crisis in different forms than lenders are accustomed to," Green said. "Hopefully they'll remain an option. Yet we also have to develop and implement alternatives to ensure our industry maintains affordable access to mortgage capital."
Dorsa encouraged CUs to take advantage of the "opportunity to re-invent the corporate network" and craft their own secondary marketplace. Expanding loan participations would also go a long way in helping to bleed off excess liquidity for many CUs.
"Car sales are down to historical lows, so if we're not making car loans and they are selling off their credit card portfolios, where are CUs putting all of this money? There is a ton of money going into CUs, so what are they doing with the money they have?" Dorsa mused. "Loan participations have been around for 20 years. We haven't come close to leveraging their real value. Credit unions have to do two things at once: go out and aggressively get these mortgages, while they are working on solutions to address liquidity."
