Portfolio Strategy Pays Dividends to Harborstone CU

A portfolio strategy and portfolio sale can pay huge dividends to credit unions of all sizes. That’s what Harborstone Credit Union, Tacoma, Wash., discovered after it completed a $52 million bulk portfolio transaction with Freddie Mac, McLean, Va. The benefits weren’t only monetary, they also came in the form of operating efficiency.

"We’re a medium-size credit union with a small home financing staff," explains Terry Coldiron, vice president of mortgage lending for the $554 million asset credit union. "We thought that selling large portions of our portfolio to Freddie Mac would be unmanageable. The surprise was that Freddie Mac did much of the work: It analyzed our portfolio and helped us streamline it to lessen our risk. We now operate more efficiently because our investments are easier to manage."

Harborstone used Freddie Mac’s portfolio sale solution, which is designed to help credit unions and other community lenders with portfolio strategies and cash or securities sales. In many cases, such as Harborstone’s, Freddie Mac works with a due diligence firm to help analyze mortgages for these transactions. "The due diligence service made all the difference to us," says Coldiron. "They crunched the data, isolated the pertinent information, checked it against Freddie Mac’s Single-Family Seller/Servicer Guide standards, and provided a report. We reviewed the report, which was a concise snapshot of our portfolio, and decided what to sell and what to keep."

Coldiron credits Freddie Mac account manager Susan Stein Lascko with encouraging him to restructure his mortgage portfolio and venture into a security sale. "Harborstone knew it was holding too many fixed-rate mortgages," Lascko says. "I suggested a security sale because it would streamline the credit union’s portfolio and it could cash out when needed. It was the best way to manage the credit union’s risk."

How it worked

Harborstone chose a "swap and hold" securities transaction:

• It divided its portfolio into 14 pools of loans with similar characteristics.
• For each pool, Harborstone was given a security to hold in its investment portfolio.
• Now, the credit union can sell when the time is right: when the market is in its favor or when it needs cash to originate new mortgages.

Retaining mortgage servicing also was important for Harborstone. It shied away from security sales in the past because it didn’t want to give up servicing to an outside party, and thought remittance and reporting on securitized loans would be too complicated for servicing staff. The credit union found that servicing securitized loans was straightforward and manageable. Harborstone’s two-person servicing team handles more than $100 million in securitized loans, plus the $30 million remaining in portfolio.

Coldiron says Freddie Mac helped Harborstone stay more agile. "Let’s say that on a certain day the market condition is perfect to sell $30 million in loans. My loan servicing team is the best around, but it still takes 10 to 15 minutes per loan to input the information needed to sell to an investor. By the time they finish compiling 250 or more loans, we may have missed our window of opportunity. With a portfolio sale solution, we do that work up front, securitize the loans, and hold the securities. We sell when we want to. No hassles, no waiting, and much less risk."

"Many credit unions think securitization is too complicated or costly," he adds. "We found the process to be very simple, especially with the guidance of Freddie Mac. And as for cost, we paid a guarantee fee because we were transferring risk to Freddie Mac, and that fee was fair. Freddie Mac provided a valuable service by reducing our risk and they did it without burdening our staff or requiring us to hire temps to prepare the loans. That was worth every penny."

For more information, call your Freddie Mac account manager or the Credit Union Hotline at 866-220-2074. Ask for a free copy of "Portfolio Strategy and Sale Options: Cash and Guarantor Solutions Through Freddie Mac." Click here for information about the Freddie Mac/CUNA alliance.