As the mortgage loan frenzy winds down, many Credit Unions may
find themselves with more cash than they know what to do with. If
the lower fixed rate mortgage loans remain in the portfolio, there
could be an asset-liability mismatch in the future. It certainly
appears that rates have bottomed out and should begin to rise and
now may be the time to look at adjustable rate loans. Finding quality
assets for your cash is always a challenge. There is a government
sponsored program that allows for loans to come into the secondary
market that will give Credit Unions the ability to have more control
over their loan to deposit ratio and maintain a quality asset. Both
the Small Business Administration (SBA) and the United States Department
of Agriculture (USDA) guarantee the principal on their loans with
the Full Faith and Credit of the United States Government.
No investor has ever lost one penny of principal when purchasing
these loans. Most of the loans adjust either monthly or quarterly
and thus are great tools for your asset liability management task.
Some of the advantages of purchasing SBA and USDA loans are:
- Safety: Guaranteed portions of SBA and USDA loans are
unconditionally guaranteed as to principal and interest by the
Full Faith and Credit of the U. S. Government.
- Yield: These loans have historically provided yields,
which out perform most short-term and many long-term investments.
The yields to the purchaser of the loans are net yields. The variable
rate feature virtually eliminates interest rate risk. There are
also fixed rate loans that are available.
- Ease of Administration: You can add many loans to your
loan portfolio without adding substantially to your staff. The
originator services these loans so therefore, you can grow your
loan portfolio without adding to your servicing department.
When you purchase the guaranteed portions of SBA or USDA loans
it is like having a loan officer without all of the expenses of
hiring someone and maintaining them on the payroll. You can add
loans to your portfolio until you have accomplished what you wanted.
There are no contracts or commitments that you are liable for. This
program gives you a lot of flexibility to regulate the level of
your loan to deposit ratio without exposing your Credit Union to
credit risk. After all, the Full Faith and Credit of the United
States Government guarantee these loans.
If you are looking for investments and not loans, SBA loans are
also pooled and securitized. The Full Faith and Credit of the U.
S. Government also guarantees these securities and provides the
investor with timely payment of principal and interest.
If you are originating SBA or USDA loans and want to earn an attractive
premium and fee income, we maintain an active secondary market.
Please contact us to speak to you about the benefits of selling
your SBA and USDA loans to us.
To receive additional information about this safe and ever expanding
program please contact, Andy
Nunmaker @ 800-769-3904.
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