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Why would a credit union ever choose to sell its jumbo-mortgage
loans servicing-released and become the sub-servicer of those loans?
The reality is there are four major benefits in being a sub-servicer
of your own loans. First is the credit union still can maintain
direct control of the servicing relationship after it has sold the
loan. The credit union can see what transpires during the servicing
process and can keep its members informed or anticipate an unexpected
situation. In addition, it can take advantage of cross-sell opportunities
which result in revenue gains.
Second, a credit union receives a servicing-released premium. Because
it sells the loan servicing-released, that means it gets a better
price for the loan it sells. That in turn makes the credit union
more competitive with other lenders in competing for the affluent
Third is the credit union receives payment for servicing the loan
it once owned. This fixed fee generates an on-going cash flow that
it can apply against its servicing costs.
And fourth, a credit union is able to keep from worrying about
the volatility of a servicing asset. Managing a servicing asset
requires a certain level of expertise to deal with several issues.
Those issues include proper accounting treatment, hedging and regulatory
issues. Being a sub-servicer, the credit union also avoids the issue
of write- downs due to accelerated prepayments that cause the servicing
asset to lose value. Now accounting treatments, hedging, regulatory
issues, and write downs become someone else's concern.
So how does a credit union become a jumbo mortgage sub-servicer?
Credit unions are given several servicing options by selling their
jumbos to Network Liquidity Acceptance Company, LLC, NLAC (a corporate
credit union network CUSO). The credit union sells the jumbo mortgage
servicing-maintained. NLAC assigns the servicing for the mortgage
to the credit union that sold the loan. To qualify as a sub-servicer,
the credit union meets the base qualifications as required for a
credit union to sell its jumbos servicing-retained, only without
the annual jumbo-sales volume requirement.
NLAC also gives some options to credit unions with other servicing
needs. A credit union can sell its jumbo loans servicing- maintained
and receive customized brand name servicing. The servicing is transparent
to the credit union's members who still see the credit union as
the loan servicer. Another option is for the credit union to sell
the jumbo loans servicing-retained. This option allows the credit
union to remove the interest rate risk, but keep a servicing asset
on its books. The credit union maintains a close relationship with
the member under either option. That relationship is enhanced because
NLAC does not cross-sell natural person members and works to ensure
that each credit union continues to be the primary financial institution
for its members.
A credit union can get the best of both worlds when it becomes
a sub-servicer. It gains a servicing- maintained premium for selling
the jumbo loans, and also is paid to service the loans. It's an
interesting option to consider.
NLAC is a CUSO and wholly owned subsidiary of U.S. Central Credit
Union. Jim can be reached at (888) 872-0440, ext. 6153.
February 3, 2003
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