Credit Unions Can Play a Key Role in the Subprime Solution

In the wake of the subprime fallout, here are four steps to offering sustainable homeownership solutions to new and refinance borrowers.


Once again, the real estate market is a hot topic, but instead of bragging about double-digit home appreciation, it is likely that you are discussing the subprime turmoil or perhaps the increasing number of “for sale” signs on your block. While responsible subprime lending can help impaired credit borrowers obtain home loans, the fast-moving market left in its wake layered risks, teaser rates, and low-documentation mortgages, on top of floating-rate loans. These factors, coupled with a slower housing market, are causing unsustainable loan resets for many borrowers; we’re seeing the effects across the country.

Challenging market outlook
Fannie Mae Vice President and Chief Economist, David Berson, forecasts that existing and new home sales will continue to decline as the surge in unsold inventories is putting downward pressure on home prices. New home sales in the first four months of 2007 were 20% lower than a year ago, and existing home sales were 7.6% less, falling to the lowest level in four years. For the first time in 30 years, home price growth by most measures will fall into negative territory. And, the recent jump in interest rates shows little prospect of easing in 2007, making buying a home more expensive for consumers.

We’ve seen the subprime market grow dramatically since 2000 – from $126 billion in subprime originations nationwide to $591 billion in 2006. And this year, it’s estimated that $1.1 trillion in ARMs (both prime and subprime loans) will reset nationwide at much higher rates. During the last quarter of 2006, MBA data shows that new foreclosures on subprime loans were up 50% from the same period a year earlier.

Credit Unions as part of the solution
The market presents a unique and important opportunity to serve homeowners who may be facing tough ARM resets and rising interest rates in the coming months. What can you do to help your own members who may be at risk? Below are four steps you can take to offer sustainable homeownership solutions to both purchase and refinance borrowers:

1. Size up your opportunity to serve the market
You have an important role to play – helping your customers into a sustainable mortgage before they have payment challenges.

Last year, more than 20% of originations were subprime – it’s likely you have members who are or will be impacted by the turmoil in the subprime market. The good news, however, is that our analysis shows a vast majority of subprime borrowers may qualify for traditional conforming loans, especially if they have a 12-month clean payment history. With effective, proactive outreach and education, you can serve these borrowers and bring added value to your membership.

2. Offer products and services that can help ease the subprime pressure
Subprime is a buzz word today and consumers are looking to better understand the issue and determine if they are at risk. First, focus on providing or expanding mortgage lending as a key service for your customers – it can be a cornerstone of a full-service financial bond. Help meet members’ specific needs and stay competitive by expanding your range of products and services. Today, most consumers are looking for affordable, fixed-rate mortgages – the sweet spot for credit unions.

Credit unions are also known for educational services, like home buying seminars, financial literacy classes, and even retirement planning. Consider expanding this type of opportunity to help members understand their mortgage – whether they got the loan from you or not.

3. Market yourself as a trusted advisor to your members and community
Your competitors might spend big bucks on advertising, but you still have a unique advantage – a built-in affinity group predisposed to listen to your message.

So, be proactive and develop a multifaceted marketing campaign to tell your members and the community about the solutions and services you are providing to help in this challenging market. It can include: signs in your office promoting competitive mortgage rates, low closing costs, and refinance products; events and educational seminars that bring members in the door; cross-training among staff; messaging in member statement stuffers or newsletters; garnering local media attention with relevant announcements; and targeted outreach to potential homebuyers like renters and underserved markets where subprime lenders may dominate.

4. Engage partners to make a community impact.
Many others in the industry are responding to the subprime situation; build relationships with those partners, like counseling agencies and affordable lending partners, to bring additional value to your members.

Fannie Mae, for example, accepts forbearance options that can help you better service your members during this challenging market. Working with our servicers, we have helped more than 18,000 families experiencing financial difficulty stay in their homes through loan forbearance and repayments and more than 27,000 families through loan modifications.

Fannie Mae’s new HomeStay Initiative focuses on working with industry partners to keep borrowers in their homes with flexible mortgage products, underwriting guidelines that emphasize the borrower’s ability to repay the debt, servicing policies that emphasize keeping borrowers in homes, and outreach and grants for the industry.

We share a common goal to not only get people in homes, but also to keep them there so our communities thrive and remain strong. Credit unions have an opportunity to play a unique role as more consumers, including your members, seek sustainable home loans.

Want to learn more about this issue?

  • Please visit us at NAFCU’s 40th Annual Conference & Exhibition from July 17-21 in Honolulu, Hawaii. We have a session devoted to this new opportunity for credit unions on July 20 at 8:30 a.m. and we’ll also be in Booth 107.
  • For the latest economic information and forecast, view weekly and monthly economic commentaries by Fannie Mae’s Chief Economist, David Berson.
  • Fannie Mae has products developed and adapted specifically for credit unions, including MyCommunityMortgageand Expanded Approval.


This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.

If you are interested in contributing an article on, please contact our Callahan Media team at or 1-800-446-7453.


July 9, 2007


  • It''s good to see Fannie Mae continue its efforts to get CUs to engage in helping to solve this growing problem (which was not of their making). If credit unions make first mortgages a true core product, then they will have a much larger national footprint.
    Carol Anne Burger