The Federal Housing Finance Agency (FHFA) has extended the application deadline of its Home Affordable Refinance Program (HARP) to December 31, 2015, thereby allowing financial institutions to assist more homeowners struggling with mortgage payments. The U.S. federal government implemented HARP in 2009 to offer a way for underwater and near-underwater homeowners to refinance their mortgages into a lower interest rate or a more stable mortgage product. According to a FHFA news release from September 23, 2013, more than 2.8 million homeowners — or an average of 700,000 a year — have refinanced through HARP.
The FHFA has changed eligibility requirements in recent months to allow and convince more borrowers to refinance through HARP. Credit unions, particularly in the sand states, are actively encouraging HARP refinances; possibly none more so than Desert Schools Federal Credit Union ($3.26B, Phoenix, AZ).
In Arizona, the recovery is continuing for credit unions and members alike; however real estate lending remains a challenge. Desert Schools held $865 million in real estate loans as of June 2013, according to Search & Analyze data on CreditUnions.com. That’s the lowest balance it has posted since the recession began to emerge in September 2008. That month, Desert Schools recorded $1.5 billion in real estate loans.
According to Gary Sneed, chief lending officer of Desert Schools, the credit union was excited when HARP became available in late 2009. The institution took the time to learn the language and understand the processes and risks, then it spent up to six months bringing in new staff to handle the increased traffic. When HARP began, Sneed says, turnaround times for refinances swelled. Desert Schools could traditionally turn around a refinance in 30 days, but the volume of HARP applicants pushed that up to 90 or even 120 days at the peak of the program’s popularity. For some credit unions, the process took as long as six months.
Desert Schools’ market is generally dominated by banks such as Chase, BBVA, and Wells Fargo. HARP gave the credit union the opportunity to ramp up its real estate and mortgage lending efforts, Sneed says. Now, Desert Schools is among the top five institutions with the largest mortgage market share in the area.
“We want to be able to serve our members and provide the financial solutions they are seeking,” Sneed says. “And secondly, it is a primary source of revenue for the organization.”
Desert Schools sells most of its mortgage business to Fannie Mae and retains servicing. Therefore, most of its mortgage-holding membership was eligible for HARP refinancing.
Much like the federal government, Desert Schools drew a lot of business when it initially implemented HARP, Sneed says. Then volume fell slightly and remained constant until slowing again when rates started to rise in May of 2012. Sneed estimates approximately 85% of the credit union’s refinance business went through HARP at the start, but that has now dropped to 30%. Since HARP, refinances have represented approximately 85% of Desert Schools’ total mortgage business; that percentage has remained steady even as HARP refinances have declined.
To identify more members within its market who were eligible for HARP but had not refinanced, Desert Schools bought data from its credit bureau that produced 50,000 eligible individuals in its market, 4,000 of which were already members of the credit union. Around the same time, the federal government extended HARP’s end date to December 31, 2015, so the credit union expanded its efforts to refinance its eligible membership. Looking to attract eligible members who had not reached out to the credit union, Desert Schools launched an awareness program that included emails, phone calls, direct mail, and local TV advertising.
“Any of our members who would qualify we wanted to refinance,” Sneed says. “We had members whose mortgages we had, and then there were members who had mortgages with other lenders who qualified. We wanted to make sure we recaptured those mortgages by offering them HARP and refinancing them through us versus letting them refinance through their current mortgage holder.”
In the Arizona housing market, prices are still below pre-recession levels and many mortgages remain underwater; however, the market is improving rapidly Desert Schools wants to play a larger role in recovery efforts. For example, with the help of HARP, Desert Schools has reduced members’ monthly debt obligations by more than $260 on average, resulting in more than $3,000 in savings per year.
Desert Schools has a long-held goal to deepen its wallet share among its members. Thus, a majority of HARP refinances have occurred within its membership. Another area in which the credit union has posted remarkable growth is in used auto loans, an area where the credit union holds $230 million, slightly below average for credit unions with more than $1 billion in assets but a 36% increase year-over-year, according to Search & Analyze data from June 2013.
Unless the federal government decides to extend the program further, HARP will end in December 2015. When that happens, Desert Schools will lose a tremendous tool that has helped drive growth, income, and community relationships since 2009. Until then, the credit union will continue to refinance and provide financial solutions to members.
“We have the ability to offer the opportunity to refinance for those who haven’t been able to because they were in a negative equity position,” Sneed says. The credit union will diligently work for the next two years to provide those borrowers some relief.