U.S. Central's NLAC giving CUs an option to sell their jumbo mortgages - and not lose member relationship

<p>OVERLAND PARK, Kansas – Jumbo mortgages have been a jumbo problem for CUs to sell off, but there’s new hope. Network Liquidity Acceptance Company, LLC, a wholly-owned CUSO of U.S. Central, is offering CUs a new option in selling off their jumbo mortgage loans. As of Jan. 1, jumbo mortgages were defined as any mortgages with original value of $300,700 or more. It’s common for credit unions to sell conventional mortgages to Freddie Mac or Fannie Mae, but Freddie and Fannie do not purchase jumbos. NLAC leaders are hoping NLAC can fill this niche and give CUs a new weapon in controlling interest-rate and liquidity risk. There’s a modest amount of jumbo mortgages in the CU industry. In 2000, credit unions underwrote about $20 billion worth of first mortgages, with $2 billion of that being in jumbos. David Dickens, SVP of Asset Liability Management with U.S. Central, said selling jumbos not only allows CUs to manage interest-rate risk and liquidity risk, but potentially open themselves up to do business with their more affluent members, the segment most likely needing jumbo mortgages. Since jumbos are larger, longterm loans and typically carry fixed-rates, interest-rate risk is an issue. Instead of having to turn down affluent members, CUs can unload some of the risk of jumbos by selling them to NLAC, freeing itself up to do more jumbos. Dickens said there are private firms that buy jumbos, but they typically want to take over the servicing to get access to members. The danger is that those firms can then begin marketing other products directly to members. Given that a CU’s affluent members are going to be in the market for jumbos, these private firms can get access to some of the CU’s potentially most profitable members. NLAC will purchase the servicing rights and retain the rights on their books, but the credit union can choose to have the servicing done utilizing the CU’s name, thus keeping that member relationship intact. Karen Pease, NLAC’s managing director, said credit unions that underwrite mortgages with Freddie Mac’s Loan Prospector or Fannie Mae’s Desktop Underwriter can get quick decisions as to whether or not they can sell their jumbos to NLAC. Credit unions must be Fannie and Freddie compliant to sell jumbos to NLAC. Pease said once a CU goes through its initial sale of a jumbo to NLAC, sales from that point on should go quicker. She said sales can be as short as two weeks, but can take up to eight weeks. Dickens said he hopes this program gives more CUs, which may have shied away from underwriting jumbos because of limited sell-off options, the opportunity to do more jumbos. The new program makes fiscal sense for NLAC, said Dickens, because it can use funding from U.S. Central and corporates if it wants to retain some or all of the mortgages, and it can afford to wait and aggregate enough of a volume of mortgages to take to the capital markets for a competitive price. NLAC’s bread and butter has so far been auto loans. To date NLAC has purchased about $500 million worth of CU loans, the bulk being autos. It has done some mortgages, and just a few business loans. NLAC was created in 1998. In recent years the industry has been so flush with liquidity that its business has been kept in check. Dickens said the industry’s liquidity state is not as big a factor for selling-off jumbo mortgages because it’s more an issue of managing interest-rate risk. Credit unions can work through their corporate credit unions to get access to NLAC. [email protected]</p>