Lower prices translate into an increase in how much house consumers can afford to buy. But what does that mean for your credit union? This is an excellent opportunity to grow your mortgage-lending portfolio. The question is which type of loan is best for you to offer. As you wrap up your 2007 strategic planning, consider offering members both conforming and non-conforming (jumbo) mortgages.
Indications from the Office of Federal Housing Enterprise Oversight are that the cap on conforming loans for 2007 will remain at the 2006 level – $417,000 for most of the country. That means first-time borrowers will have greater choice in the type of loans they select. Members wishing to stay under the conforming loan cap will be able to choose from a wider selection of homes at affordable prices. Others looking at the higher end will be able to take advantage of the lower prices to purchase larger homes than they previously might have considered. Offering both conforming and jumbo mortgages allows your credit union to satisfy the borrowing needs of more members.
Expanding into the jumbo market
With conforming home mortgages accounting for some $3 trillion in 2005, these loans are clearly the staple offering among mortgage lenders. Nearly 75% of credit unions’ mortgage portfolios are comprised of conforming loans, yet the total dollar volume of these portfolios typically is less than $10 million. To grow their home loan offerings, many credit unions are looking into making jumbo loans.
At $349 billion in 2005, the U.S. jumbo market still is comparatively small, representing some 18% of total single-family mortgage originations last year. But it provides an excellent growth opportunity. Credit unions that enter the jumbo arena are finding an increasing number of potential home buyers – and new members – who are shopping for the best deal. And while the largest concentration of high-end houses continues to be on the coasts and in parts of the south, jumbos are becoming popular with new-home purchasers across the country.
Selling mortgage loans
Making loans to members continues to be credit unions’ greatest strength, and demand for a variety of home mortgages is certain to grow as home prices remain low. So why doesn’t our industry have a larger piece of the mortgage-lending pie? For many, it’s because they hold their home loans on the balance sheet, which hinders them from maintaining the liquidity to originate new loans. And most hang onto those for fear of losing the servicing and, thereby, their member relationships.
But this doesn’t have to be the case. Both Fannie Mae and Freddie Mac provide superior, easy-to-access outlets for selling conforming loans. Further, both agencies allow credit unions to retain loan servicing.
Charlie Mac also offers the same advantages of selling all or a portion of jumbo loan portfolios – such as increased liquidity and interest-rate risk management – and it allows you to retain the loan servicing and the member relationship. Today, achieving success means looking for ways to serve members’ evolving needs. Entering the jumbo-loan arena is an effective method for doing so. Contact your corporate credit union to learn how Charlie Mac can assist while helping you protect your valuable member relationships.
Charlie Mac is a corporate credit union-owned CUSO and secondary-market investor dedicated to helping credit unions reduce the cost of managing liquidity while maintaining strong relationships. Contact your corporate investment representative for more information.