On the topic of mortgage lending resources, the first question many credit unions ask is, “When is the Fed going to increase rates?” By implication, that would cause a rise in interest rates across the board—including mortgages.
From the vantage point of mortgage origination and servicing software providers, the question takes on a less urgent tone.
“I don’t see a near-term Fed increase in rates,” says Beth Millstein, director of business development at Fannie Mae, a CUNA Strategic Services alliance provider. “We’re predicting only one increase in 2016 and that the yield curve will remain relatively flat. We publish monthly forecasts and updates on our website, and encourage frequent reviews of our projections.”
A minor rate jump shouldn’t significantly hamper the market, says Peter T. Sorce, President/CEO of Midwest Loan Services. “Mortgage interest rates today, and for the past several years, remain at record lows,” Sorce says.
“When the Fed increases interest rates—that’s inevitable—we think mortgage rates will remain low and that shouldn’t price potential borrowers out of the mortgage market.”
“But keep in mind that increased interest rates in general and mortgage interest rates in particular will have a trickle-down effect on all loan types; savings and debt service,” Sorce adds. “Those will increase.”
Explore mortgage lending
Millstein encourages credit unions to consider allocating more resources toward their mortgage operations.
“Right now,” she explains, “many more credit unions could actively originate mortgages. Don’t be afraid to lend. One benefit to offering mortgages is long-term member relationships through servicing. You retain members whom trust you a lot, and you build long-term borrowers.”
One example of a trust builder, she says, is HomeReady, a product designed for low-income borrowers.
“Credit unions can use mortgage servicing as a way to engage with members,” Millstein says. “They need to explore how mortgages fit into their strategy. They should view mortgages as a line of business, not just an accommodation to members or an afterthought. That means they have to build an infrastructure: staff, marketing, and outreach.”
Millstein cites three objections credit unions raise about doing business with Fannie Mae:
Those concerns are legitimate, but surmountable with Fannie Mae’s assistance, says Millstein: “We say that you’re never too small to be a lender. We can help credit unions deal with all these issues.”
Credit unions should understand that mortgage quality has improved substantially since the financial crisis.
“High standards, reliable data, better risk tools, and the ability to determine income make origination much safer and surer than before,” Millstein says.
In an effort to serve more members, credit unions should explore whether expanding their mortgage product offerings makes sense for them, Sorce says.
“Credit unions should explore whether expanding into mortgage products such as the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) would not only meet the mortgage demands of their member base but also allow them to compete with other financial institutions,” he says.
Servicing and solutions
Mortgage service providers can provide an extensive list of features designed over the years to make their products almost a “soup to nuts” proposition.
“We’ve created web applications that link with our loan origination software, Loan Producer, to simplify the mortgage application process for borrowers and loan officers,” says Susan Graham, president/chief operating officer of FICS. “Our online application, LPOnline, is branded for our credit union clients and is quick and simple for borrowers and lenders to complete.”
Applications run through a built-in credit interface and then an automated underwriting system.
“Credit unions can save applicant information and documents to their loan origination system, and share necessary documents with applicants. Members can track a loan’s progress by accessing FICS’s LPOnline application to view documents and monitor their status.”
For loan officers, FICS’s Xcluso provides an online portal—accessible anywhere by laptop or tablet—that interfaces with Loan Producer.
“Xcluso makes managing prospect pipelines a cinch,” says Graham. “Loan officers can input information into a uniform residential loan application, pull credit, and accept or deny applicants as borrowers. They also can attach documentation, such as pay stubs, tax returns, and gift letters.”
FICS issues updates and adds features several times each year.
“For upcoming releases of Loan Producer, we’ll incorporate the 2017 Home Mortgage Disclosure Act regulations, the Fannie Mae/Freddie Mac Uniform Closing Dataset, and the Fannie Mae/Freddie Mac new-borrower application,” says Graham. “FICS’s Mortgage Servicer will incorporate changes Fannie Mae is making to its investor reporting requirements, including new regulations due in 2017.”
Fannie Mae offers tools for evaluating credit risk and collateral risk. Desktop Underwriter assesses credit risk data to determine eligibility guidelines. Millstein says credit unions should feel confident that an “approve/eligible” ecommendation means a loan is saleable to Fannie Mae.
And Collateral Underwriter gives credit unions a more robust tool to evaluate appraisal quality and collateral risk, according to Millstein.
“Leaders who leverage strong risk assessment tools and who focus on data quality management should feel confident about their credit risk decisions,” she says.
Midwest Loan Services offers a comprehensive approach to mortgages.
“We assist with originations through servicing and subservicing which includes—if necessary—default administration (collections, loss mitigations, bankruptcy, foreclosure and claims).
Midwest Loan Services also offers private label subservicing.
“Credit union members would not normally detect our presence since we are performing all of the servicing functions in the name of the credit union,” Sorce says. “We operate in the background so our clients are always front and center with their members. Another point: We absolutely do not cross-sell products to any of our clients members. Finally, we handle all of the default administration for our clients.”
“Each state has its own laws surrounding foreclosure,” Sorce adds, “so we take the regulatory burden away from our clients and we work diligently to either get the loan back to a performing status or ensure that while the loan is in a default status all regulatory requirements are met.”