PHILADELPHIA-Credit unions looking to reverse mortgages as one way to bolster its lending portfolio can choose from a number of options before taking the plunge.
Creating a proprietary product is an approach better suited to a large credit union, according to the $16.5-billion State Employees CU in Raleigh, N.C., which recently launched its own reverse mortgage (see related story). Instead of creating a proprietary product - a less common CU practice, SECU admits-credit unions can simply pass members on to another lender and receive a referral fee, or they can work with a third party, such as Members Trust Company.
Chartered by the Office of Thrift Supervision, the Tampa, Fla.-based Members Trust is a CUSO owned by five credit unions that provides trust and investment services to CU members across the country, as well as reverse mortgage products to 10 credit unions. Members Trust can handle as much of the up-front work as needed by the credit union, and provides servicing through a sub-servicing company.
First Heritage Financial here, the mortgage CUSO for the $730-million American Heritage FCU, currently refers members to Wells Fargo for the Federal Housing Administration's Home Equity Conversion Mortgage (HECM), a practice that some credit unions fear will cause them to lose the relationship. Cos Manzo, VP of mortgage services for the CUSO, explained that First Heritage made the move because of the complexity of reverse mortgages, especially the servicing.
"The servicer must make sure individuals get their money and that what they receive over time is accurate," said Manzo, pointing to how reverse mortgages taken as equity lines of credit can pay variable monthly disbursements as borrowers age. "Plus, you have to take out interest and get it back to the investor and make sure all that is done correctly. All the systems set up for mortgages are set up on amortization. Because it's the tail wagging the dog, not many servicers in the country possess the expertise to do this and have the software."
First Heritage, which receives 25 basis points on the loan amount from Wells Fargo, plans to become more involved in reverse mortgages, Manzo said, noting that creating a proprietary product is an option. The CUSO has made 11 loans since it began aggressively promoting reverse mortgages this year.
Members Trust has quickly grown to work with 10 credit unions since first offering reverse mortgages in April 2008. Walker said 30 more credit unions are considering offering reverse mortgages through Members Trust.
In addition to offering the HECM loan, Members Trust has a proprietary product similar in pricing to HECM, but "with much lower closing costs and a better lender's margin," Walker said.
Member's Trust's origination fee is set by the lender and is based on the line of credit as opposed the home's market value, and there is no insurance premium, explained Walker, who said those features often save the borrower $8-$12,000.
"We are very close to getting private insurance on our proprietary reverse mortgage product, which will provide credit union with another option," said Walker. "We think we will have that in three months, and we'll be the first lender in the country with private insurance on proprietary reverse mortgage product."
