First New England Federal Credit Union is a SEG-based institution headquartered in East Hartford, CT, with 10,627 members and $74.4 million in assets. Its more than $35.7 million in real estate loans comprised roughly 67% of its total loan portfolio in the fourth quarter of 2011, according to Callahan & Associates' Peer-to-Peer software.
Victor Petroni, senior vice president of lending for First New England and president of Mortgage Markets CUSO, LLC, explains what the new HARP rules mean for his institutions and the impact they could have on cooperatives.
Describe your current portfolio composition and any trends you’re seeing. What factors in the community and in the credit union are facilitating that activity?
Victor Petroni: We have been an active seller of mortgages on the secondary market for years, therefore we have capacity in our first mortgage portfolio to add loans. As for second mortgages, the opposite is true. We had been steadily building fixed seconds and HELOC loans up until late 2008 when the recession hit.
At the time, we looked at home values dropping, mortgage delinquencies and foreclosures rising, and the changing interest rate environment. We decided to pursue a course of action that would keep our existing portfolio of HELOC’s steady and allow some run off for the fixed seconds into new fist mortgages.
Most of the first mortgage growth this past year was in 15-year fixed mortgages or ARMs. The ARMs we have been doing are generally non-saleable loans that we have determined are great member loans. Some of these were a consolidation of a first mortgage with one of our second mortgages, which resulted in a high loan-to-value mortgage that we could not sell or obtain mortgage insurance on. A new first puts the credit union in the primary lien holder position, lowering the member’s payment and improving the credit union’s risk position. Other issues that prevent secondary market approval are also in the ARM mix, such as debt-to-income ratios, property issues, income calculations, or documentation issues.
What was your experience with the first HARP program, both at the credit union and with Mortgage Markets?
VP: We did not deny any members who were eligible for HARP due to LTV, so the 125% cap was not an issue for us. As for our experience, we loved the first iteration of HARP because we could help lower member’s monthly payments and other considerations like credit, debt-to-income, loan-to-value, and mortgage insurance were mostly nonfactors.
Where do you see opportunities in the new HARP program? Where can HARP to be improved?
VP: For us, the biggest internal changes with HARP 2.0 are the elimination of the lender representation and warranties and the caps on loan level price adjustments. We never did let the rep and warranty issues keep us from doing HARP. That said, of course the credit union and the CUSO can breathe a little easier with fewer ongoing risks. The changes also bring competitors out of the woodwork who previously shied away from HARP loans for fear of risk.
From an external improvement perspective, awareness of HARP 2.0 is much greater due to the president’s State of the Union address and news media outlets running stories on the program. Additionally, Fannie and Freddie are encouraging lenders to market HARP refinance to eligible loans within their portfolios. In Freddie’s case, they even did the leg work and provided us a list of eligible mortgages they identified. It is all about awareness and then reaching out to members that qualify and making it easy for them get the process started.
Do you have a projected ROI or benchmark you’re looking to hit?
VP: Our income targets were actually reduced for 2012 due to higher cost of compliance and technology required to deal with secondary market investor requirements, as well as lower profitability of loan sales due to ever increasing fees assessed by Fannie and Freddie. We have also recently added the Federal Home Loan Bank (FHLB) mortgage programs to expand our investors and improve our loan sales option and profitability.
Has the GSE’s delay in updating their automated underwriting systems affected your strategy at all?
VP: It hasn’t affected our strategy with the exception of the need to modify a marketing piece that we sent out in December and had hoped to use to promote the no LTV restrictions while the buzz was in the media. As with when HAMP and HARP were first announced, member interest is immediate but lenders are not given the tools for implementing the programs until months after the announcement of their availability. At least this time we were still able to help members. The first time was a nightmare!
Will your efforts be rolled out in phases?
VP: We are already contacting our own portfolio loans by direct phone solicitation. We are in the process of obtaining a list of members that have a HARP eligible mortgage with others and will be contacting them through our credit union sales team.
Tell me about your partnership with Midwest Loan Services and Core Logic and how they fit into your strategy for recapture?
VP: A benefit of HARP 2.0 is that vendor products and support are becoming available to go after these loans. I know of no one who did this with the original HARP program, maybe because LTV was such a moving target or there wasn’t a demand.
Midwest Loan Services is the sub-servicing agent for our CUSO and our credit union’s first mortgages. They came up with an innovative approach to helping their clients mine data from their membership and identify HARP eligible members. By aggregating their entire sub-servicing client base, they were able to obtain favorable pricing for their clients who might otherwise fall well below the minimum number required for a data run.
Are there special rules and guidelines from the GSE as far as marketing/outreach that you must follow?
VP: They have green-lighted soliciting loans within your portfolio that are eligible for HARP refinances. I have not seen anything that limits or dictates how you make that solicitation.
How will Harp 2.0 offer more opportunity for CUSOs?
VP: Our opportunity with the CUSO is to provide partner credit unions with access to these secondary market government subsidized programs for their members. They will benefit by being able to serve their members who would otherwise go to a competitor. For those partners who wish to participate, we will also be using the CoreLogic product to identify their HARP 2.0 eligible members for direct solicitation.