First mortgage real estate loans, credit unions' largest loan category, grew 5.7% during the first six months of 2006 despite a generally plain-vanilla approach.
One person sees other opportunities over the next six months.
Fannie Mae's VP of Marketing for credit union business, John Sayre, said that credit unions had been "extremely conservative and focused, primarily on the 30-year fixed rate mortgage. It's been pretty straightforward, and the purchase-money market has been stable. A lot of recent money has been in refis, but now we're seeing people shifting out of repricing ARMs and cash-outs," said Sayre.
Fannie Mae has revamped its My Community Mortgage (see related story, page 16) to help capture a higher number of first mortgages by enhancing the product features, said Sayre, and "the volume is ramping up, and I mean it's happening in real time. We've added a 40-year term and now allow 2-1 buydowns in order to make payments easier."
Fannie Mae's My Community Mortgage is underwritten through its Desktop Underwriter software and is available to all approved Fannie Mae lenders as a standard Selling Guide product. There's a zero-down potential, Sayre said, and condominiums are to be treated as single family attached homes. "That's going to mean more transactions approvals and bring better results."
Some highlights include up to 100% percent LTV ratio; no minimum borrower contribution; low mortgage insurance coverage requirements: 20% for 100% LTV, 18% for 97% LTV; terms out to 40-years, and options for initial interest-only period; flexibility on credit histories, with nontraditional credit accepted; income-source flexibilities, including broader income from relatives or nonrelatives; and co-ops are now eligible for low mortgage insurance and an LTV up to 100%.
Help From FannieNeighbors
In addition, many parishes/counties in 2005 hurricane-damaged areas of Louisiana, Mississippi, Alabama, and Texas are now eligible for assistance from "FannieNeighbors," said Sayre. "Unlike money center banks, credit unions don't have proprietary underwriting technology, so if we put it there for them it can help grow the business. They can have access to more affordable options and know that they can do these loans with confidence because Fannie Mae is with them."
Sayre noted a recent JD Power & Associates finding that satisfaction is highest among homeowners when their mortgage provider retains servicing, which most credit unions do. "That relationship serves credit unions well."
Mercy Jimenez, senior VP with Fannie Mae, who manages relationships with credit union partners, refers to that relationship as "points of differentiation" for credit unions, which they need to leverage to compete better and increase market share. She said that credit unions "have a higher rate of saying 'yes' than other financial institutions," which is borne out by the most recent HMDA data.
According to HMDA findings, credit unions have a mortgage approval rate for low-income minority families of 66%, compared with a 59% approval rate for banks and thrifts.
"Credit unions are viewed as 'authentic' in the eyes of their members," added Jimenez, who cited 2005 Forrester research that found about 70% of CU members consider their credit union to be an advocate for them compared to 42% of bank customers who felt the same.
"Credit unions are not always after the short-term gain of just closing a loan today. For example, credit unions are not flocking to exotic loan products and trying to push members into them when it's not in their best interest. And credit unions can be more patient and like to engage members long-term-they do educational programs and credit counseling," said Jimenez.
