Smart mortgage lending practices protected most credit unions from making the bad loans that drove many lenders under following the recent housing market collapse. So as the housing market gradually recovers, many consider credit unions the go-to lenders for conscientious borrowers.
But even though most shady players were driven out of the mortgage business, regulators are coming down hard on financial institutions offering the loans. That means credit unions will have to make sense of a jumble of new regulations in 2012.
“Impending regulatory changes include QRM [Qualified Residential Mortgage], which involves risk retention on loans sold in the secondary market that don’t meet QRM standards, and QM [Qualified Mortgage], which is a yet to be determined standard that will have to be met on all first mortgages,” says Wallace Jones, vice president/national training director at CU Members Mortgage. “There will also be new rules regarding servicing. There has been a lot of pressure to dramatically change what mortgage servicers are required to do.”
Tom Pisapia, executive vice president at QR Lending Inc., says impending regulations will follow a tsunami of recent changes contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. “We’ve seen only a small part of its impact on the origination and servicing of residential mortgage loans, but we know it will not lessen the compliance burden.”
Adding to credit unions’ burden, says Jones, is that the time given to implement changes has been cut. “The fuse is shorter. Financial institutions used to have a four- to six-month window for assimilating regulatory changes. Now it’s a much shorter span.”
Pisapia uses the same terminology: “Regulations are more fast-track than before and their effective dates come with shorter fuses. It’s probably related to the subprime meltdown and may be an overreaction to it.”
Many regulations, he says, are being implemented without regard for existing ones, or the fact that most bad players have been squeezed out of the market. “We’re getting layer upon regulatory layer to consolidate and wade through.”
Pisapia notes that the slowest part of the mortgage process is now the appraisal. “What used to take an average of six to eight days now takes 10 to 14.”
But while new regulations have slowed the process, he says increasing demand for appraisers’ services has been an encouraging sign.
Another bright note is the presence of mortgage lenders and service providers that can handle the new regulatory requirements, leaving credit unions free to pursue new business.
In fact, says Pisapia, such companies “can shield credit unions from almost any hassle in the mortgage process—except for accepting applications.
“Years ago, credit unions that produced a minimal number of mortgages per year might have been able to perform all the compliance functions necessary to appease regulators,” he continues. “However, the mortgage loan process has become so complex that it requires state-of-the-art technology and specialized expertise whether you do one or 1,000 loans a year.”
Next: What vendors offer
What vendors offer
Pisapia says QR Lending can help take the regulatory and compliance burden off credit unions’ shoulders. It also offers dedicated personal loan coordinators credit union clients can call for assistance, streamlining processes which results in faster underwriting turnaround times.
CU Members Mortgage has four levels of residential first mortgage offerings, divided into two channels:
1. Direct lending. The credit union has minimal involvement in the origination process. “This channel is for credit unions that want to earn fee income but don’t have the expertise, funds, or desire to support a mortgage department,” Jones explains. “In this case, we do most of the work as an extension of their team, including tending to regulatory and compliance issues.
“We have several resources that help the credit union brand the product offering to their members,” he continues, “including a state-of-the-art home loan application website made specifically for them.”
2. Correspondent division. The credit union does most of the work during the origination process and CU Members Mortgage typically underwrites, assists with closing, and provides servicing.
“We’ve been serving credit unions for 30 years,” Jones says. “That gives us a long history to help guide credit unions as to what will work best for them, and to educate them to stay in compliance.”
Fairly new—but already making a splash for its quick processing time—is United Wholesale Mortgage, which started reaching out to credit union clients early in 2011.
“We’re not the norm—we can process a loan, from submission to [funding], in less than 10 days,” says Kimberly Ogles, director of credit union relations. “The credit union can bring everything to the table at one time. The borrower only needs to come in once and the deal is done.”
That quickness, she says, is something credit unions can tout as an example of their dedication to member service.
The company also offers Easy Qualifier, an application that allows credit unions to input members’ data and generate mortgage options.
“The credit union can then decide which option it wants to offer,” Ogles says. “We’re a wholesale lender that retains servicing for credit unions on all conventional or Federal Housing Administration mortgages. Our clients’ members don’t have to know we’re involved—we operate as far behind the scenes as the credit union wants.”
However, despite the company’s low profile, Ogles says it runs checks and verifications as though each loan was one of its own. “We make sure everything about the loan is compliant.”
One popular product is a low-rate conventional loan with built-in mortgage insurance protection, she adds. It covers most of the loan without the borrower actually having to take out an insurance policy.
“For some, the savings can be up to several hundred dollars per month,” Ogles says. “These loans make up 50% of what we’re doing now.”
Next: Guarded optimism for 2012
Guarded optimism for 2012
In 2012, mortgage lending activity will depend on market conditions and rates, as well as pending regulatory changes, says Wallace Jones, vice president/national training director for CU Members Mortgage.
“Overall, credit unions looking to grow their mortgage market share will be in good shape,” he says. “It helps that the public’s perception of credit unions is better than banks’.”
Regionally, Jones says the hardest-hit housing markets are Florida, California, Nevada, Arizona, and Michigan. “Hopefully these markets are now poised to recover in that they’ve probably bottomed out. The rest of the U.S. has been more stable overall, but still has pockets where the housing market has struggled.”
Tom Pisapia, executive vice president at QR Lending Inc., says 2012 “will show a continued increase in mortgage demand at credit unions as more people migrate from banks and mortgage brokers to the security and reliability of their local credit unions. Just as they’re viewed as an attractive alternative to banks on the deposit and credit card side, credit unions will have the opportunity to capture an even larger share of the residential mortgage market.”
A big assist to credit unions will come from HARP 2 (the revised version of the Home Affordable Refinance Program), which Pisapia says could help qualify one million new borrowers. “It reduces mortgage rates and eliminates the loan-to-value restriction.
“Eligible borrowers are those who’ve been making their payments and have been late with only one payment in the past year—people who’ve been struggling to do the right thing,” he continues. “Plus, appraisals aren’t always necessary.”
Therefore, Pisapia heads into 2012 with optimism. “Smaller lenders are faster and have better terms than the megabanks. That is a tremendous marketing advantage. In this situation, we certainly will give credit unions marketing advice, but we really don’t have to give them any ammunition against big banks.”