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CUNA Mutual: Mortgage Finance Landscape about to Change
Wednesday, November 6, 2013 6:55 AM

A lot of unanswered questions remain on the future of the mortgage finance industry, but changes are coming and what emerges could look very different than what credit unions and members are experiencing today. Alan Bahr, director of lending with the CUNA Mutual Group, says that any post-meltdown retooling of the mortgage finance industry must address four structural issues.

“Some of the key issues that must be addressed are: the federal government’s role in mortgage finance and the future of Fannie Mae and Freddie Mac,” Bahr says. “In addition, we need to determine if there’s a better way to originate, package and deliver loans to investors and, how to attract new private capital into the marketplace.”

Bahr says a consensus is growing in Congress and with the administration that there should be some federal involvement in mortgage finance. He added the 30-year fixed rate mortgage probably won’t survive if there isn’t some sort of government involvement.

“Fact is, very few borrowers can raise 30-year, fixed-rate money,” Bahr adds. “Though private capital solutions are preferred by many, the capital markets don’t like to provide long-maturity, fixed-rate funding. The only reason 30-year mortgages are viable today is that Fannie and Freddie back them up.”

Bahr also says many industry stakeholders believe a “wind-down” of the Government-Sponsored Enterprises (GSEs) must occur but no one has spelled out what life will look like after Fannie and Freddie. Bahr suggests the biggest beneficiary of a complete GSE wind-down would be Wall Street, “those who gave us the subprime mess.” That realization might change views of how drastic the wind-down should be. 

Regarding better ways to package, originate and deliver loans, industry associations and lawmakers are increasingly saying a new – and consistent – way to turn loans into securities for investment is needed.

Then there’s the question of how do you encourage more private capital.

“Everyone wants more private capital, but the bigger question is how do you make it happen? In my mind, this can’t be answered without addressing the other structural issues first,” he adds.

Bahr says credit union lenders should not expect radical changes in real estate finance as long as the GSEs are the dominant secondary mortgage forces. As the GSEs are wound down, or reinvented, “look for new lending programs to emerge.” He urges credit unions to listen to what CUSOs and other aggregators are saying because they’ll be in touch with deal sponsors and have insight to what programs will be offered in the future.

“Credit unions need to stay ahead of what’s being offered in the marketplace so they don’t lose their market share,” Bahr continues. “Select someone in your credit union to keep abreast of the new programs and products, and then disseminate that information to those who can take action on it.”

Bahr says the future of mortgage finance could become extraordinarily complex with multiple loan programs offered, but suggests credit unions may have leverage with regulators, who have shown sensitivity to the needs of small lenders.

“Use that balance sheet as a competitive tool,” he adds. “When chaos occurs, remember, you have an important competitive weapon in your balance sheet. Use it, but use it wisely.”

Helpful Resources: The Cornerstone Credit Union League’s “25 Most Important Things to Know about the New Mortgage Loan Origination Rule Changes Before January 10, 2014” webinar.  Featuring Stephanie Kalahurka, this Nov. 18 webinar will identify the areas of your credit union that may be affected by the new mortgage rules, highlight available exceptions, and explain the most important aspects of the rules.

Credit unions should also take advantage of Cornerstone’s “Five Definitions of a Qualified Mortgage under CFPB Rules Effective January 10, 2014: Including September 2013 Rule Changes” webinar. In an effort to make the Dodd-Frank Qualified Mortgage “fit” in more situations, the Consumer Financial Protection Bureau has given five definitions of a qualified mortgage. While not all will apply to every financial institution, every institution that makes mortgage loans will use one of the five definitions – most will use more than one. As we hurtle toward the January deadline, this webinar Nov. 22 webinar will assist credit unions in considering all the options and ensure that all your mortgage loan types are compliant and ready to go.