Compliance issues loom
Boggs says the greatest concern in 2013 will relate to compliance, driven by new Consumer Financial Protection Bureau (CFPB) requirements.
“The CFPB, which has issued 3,500 pages of proposed mortgage regulations, is unclear on what it wants,” he says. “Vendors and financial institutions can’t get information from it on how we are supposed to comply.”
“Qualified mortgage regulations will affect credit unions heavily,” Clampitt agrees. “New definitions of ability to repay, as determined by income and debt-to-income ratios, will interfere with credit unions’ discretionary ability to lend to members whom they’ve known for a long time.”
She adds that while big banks are tightening the lending reins, making credit unions natural candidates to fill in market gaps, several factors will limit credit unions’ mortgage maneuverability:
- Restrictions on loan officer compensation;
- Mortgage disclosure requirements of the New Real Estate Settlement Procedures Act and Truth in Lending Act;
- Limits on how many loans credit unions can deliver to Fannie Mae and Freddie Mac; and
- New servicing standards.
The mortgage outlook
Compliance issues aside, what’s in store for mortgages in 2013?
“The Fed has clearly stated that we will see low rates through 2013,” says Pisapia. “We should continue to see additional refinance activity and perhaps an expansion of the Home Affordable Refinance Program to include borrowers not currently eligible.
“Continued low rates should help boost the purchase market as well,” he adds. “Once we work through the foreclosure backlog, maybe we can finally find that ‘floor’ and begin to build home equity again.”
Boggs hears talk about the softening of the refinance boom.
“How low can rates go? Still, credit unions are in a good position if they’re willing to consider doing things they haven’t done before, such as working with mortgage bankers or doing Federal Housing Administration or Agriculture Department loans. Those could counter a softening.
“Also, foreclosures are beginning to taper off,” he continues, “which indicates the housing market is doing a slow rebound. The market was up $300 billion in 2012.”
Clampitt is less optimistic.
“We expect rates to go up half a percentage point in 2013, and the market to decline from $1.6 trillion last year to $1.2 trillion” in 2013.
During the first half of 2012, credit unions originated $56.3 billion in first mortgages, according to Mike Schenk, vice president of CUNA’s economics and statistics department (“Housing is staging a comeback,” p.14).
If this continues, full-year credit union originations will be 35% higher than the 2011 total, and will exceed the previous record (from 2009) by nearly 20%.
Mortgages now account for 54% of credit union loans and 32% of credit unions’ total assets, Schenk says. That’s up from 42% of total loans (and 26% of total assets) 10 years ago.
Vendors’ general advice about managing mortgage originations and compliance:
- Don’t get behind the curve on technology or compliance;
- Don’t offer unfamiliar types of loans;
- Find a strong, reliable mortgage partner that shares your values; and
- Focus on the member experience to build strong relationships and cross-sell other products.