Joyce Moed | Business Samples

Credit Union Leaders Mixed Reviews
By Joyce Moed, Reporter

HIGHLANDS RANCH, Colo.–With the government stepping in proposing several bills to try to resolve the mortgage crisis, credit union leaders have mixed reviews about the involvement and how it could affect CUs.

As reported on www.cujournal.com on Dec. 7, these plans would likely impact the secondary mortgage market, where most of the mortgages have been sliced up and packaged as bonds that have been bought by investors, including many credit unions. According to the NCUA, credit unions held more than $26 billion worth of mortgage-backed securities at the end of the third quarter.

"For the most part all of the legislation is in the consumer’s best interest which is the side of the issue that credit unions will gather," said Steve VanSickler, legislative and regulatory compliance chair for ACUMA in Las Vegas, and SVP/chief lending officer for Red Rocks Credit Union here. "Having a duty of care, registering and licensing mortgage originators, even those from depositories, is not a bad thing."

VanSickler also said that some credit unions–now and in the future–will be hiring mortgage originators. "And that tracking mechanism could be very important in weeding out bad apples," he said.

"Most credit unions use frontline staff to promote, or even take mortgage applications, and depending on what level of depth those persons interface in the application process will determine if they are the mortgage originator that signs the residential mortgage loan application," VanSickler added. "In most cases it would be my guess that they would not be and as such should have to be licensed."

One example of this VanSickler cited is the "promoter" example, where a member is directed to apply online or is referred to a centralized mortgage department.

The piece of federal legislation that is of most concern to VanSickler is House Bill 3906, the Mortgage Reform and Anti-Predatory Lending Act of 2007, "where a door will be opened to allow bankruptcy judges to reset the terms of a mortgage loan," he said.

"While most credit unions retain their mortgages, most mortgages are sold into pools which create mortgage-backed securities, which many credit unions seek as investments," VanSickler said. "Changing the terms of mortgage loans within a mortgage backed security could result in significant changes to the secondary market."

VanSickler added that those changes could make it difficult for CUs to move pools of mortgage loans from their balance sheet.

"All in all, the pending federal legislative activities are going to make it very difficult for mortgage brokers to continue to do business from a cost perspective due to bonding, errors and omissions insurance requirements, continuing education, new compliance requirements and limitations on earning indirect income from loan-level attributes such as a pre-payment penalty," he said.
VanSickler said that CUs can use this time to their advantage.

"Credit unions should be grateful for the free negative publicity that is being focused on other than credit unions as mortgage originators, and seize the opportunity to let American consumers know that a credit union is a great place to get a mortgage loan," he said.

Dave Doss, vice chairman of the ACUMA board of directors, and president/CEO of Arizona State Savings and Credit Union in Glendale, said he is generally not in favor of government intervention, especially in the case with a couple of these bills which would have people that originated the loans be able to walk free, he said, and would enforce fees for every borrower, which he called "unfair."

"On the surface. I’d say one of the ideas I heard was similar to an RTC that would step in and purchase the subprime mortgage. I do think it would be good for the economy for something like the RTC to step in and help the general public," Doss said. "Certainly everyone needs to be responsible for knowing what they are signing, but I do there think there have been some questionable business practices."

Bob Dorsa, president of ACUMA, worries that the bills will be used more as a political agenda than as a way to actually help people.

"The plans only touch a percentage of the people," he said. "Hopefully what will work is the credit unions communication to the general public. It would be a great idea if we could do it collectively. We should be advertising during the Super Bowl or the Olympics. I fail to see why how we’re not just creative enough. We could do great things in the world, but until we make it into people’s living rooms we can’t compete. I see that as a significant challenge for us. We have to tell our story."

In hopes of reaching some sort of compromise, NAFCU has been instrumental in advancing the industry’s concerns on the mortgage bankruptcy bill, H.R. 3609, in the hopes of limiting the impact of any mortgage bankruptcy bill only to subprime, nontraditional loans. H.R. 3609 would allow homeowners to avoid foreclosure by filing for a mortgage restructuring under Chapter 13 of the bankruptcy code. The provision would allow bankruptcy court judges to revise the interest rate, remaining value and maturity of the loan. The compromise on H.R. 3609 also would limit the mortgage bankruptcy option to existing subprime or nontraditional loans that are in foreclosure.
In a prepared statement, NAFCU said they do not believe this to be a perfect bill, but "the adoption of this compromise is a significant step forward as it presents what we believe is a workable solution."

"NAFCU has been working intensely with members of Congress and their staff to ensure that in their desire to find a solution for the subprime situation, they don’t throw the baby out with the bathwater," said Fred Becker, NAFCU president.

Becker said that recent discussions with NAFCU lobbyists, the Center for Responsible Lending, and Judiciary Committee staff have brought about this compromise.

Under the agreement, the definition of "nontraditional" loan would come from federal regulators’ subprime mortgage guidance, which applies the term to interest-only mortgages and adjustable-rate mortgages with payment options that can lead to negative amortization.

"We are delighted to have come to this compromise which affords consumers welcome relief from possible foreclosure but still protects the majority of credit unions loans," Becker said. "At a time like this, the last thing we want to do is make credit harder to come by when people need it most."