ST. PAUL, Minn. -- Adding another arrow to its quiver of real estate options, Brad Volkmann, director of real estate for Affinity Plus CU here related how the CU traded a $17 million portfolio of loans for a security of those loans created by Freddie Mac.

"Instead of selling the individual loans and keeping the servicing, we sell them to Freddie Mac, they securitize the portfolio and we buy it back and hold it as an investment," Volkmann said. "It offers us a few advantages in that it removes all credit risk, and if there is a loss, Freddie Mac will take it and not us."

Volkmann added that the $17 million deal is small compared to APCU's total real estate portfolio of $300 million, but noted that the CU could also borrow against it (at better rates and a higher percentage) than if the loans are held as collateral. "And if we need more liquidity, we can sell the security far more easily."

Iliana Ghanem, vice president of regional and Community Lending for Freddie Mac told Credit Union Times they've been securitizing portfolios for many years. "We have both the capital market expertise and the balance sheet management experience to provide the know-how to optimize such options for credit unions. It's one of our core competencies, and it comes with some accounting perspective."

Ghanem said the quality of mortgage business from credit unions has been very stable over the years. "Credit unions have held true to themselves and their members with high quality mortgage underwriting standards. I've seen no uptick in their need to unload ARM assets either," she added.

In regions where the real estate market appreciated the fastest there has been the greatest correction, she noted. "Where home prices spiraled and affordability declined you saw the kinds of 'cutting edge' loan products that are now causing such problems," Ghanem said. "I do think it presents a great opportunity for credit unions out there, particularly because they haven't been haunted by negative stories in the mainstream press. Credit unions are seen as trustworthy and this is a chance to capitalize on that position. They should be tooting their own horn."

Freddie Mac has a specialized CU team that provides a consultative approach in order to expand the CU footprint in real estate lending. Freddie Mac has had a working alliance with CUNA for nearly five years now. Any CUNA member CU that is an approved seller/servicer receives more advantageous treatment from Freddie for training, products and programs in the delivery of mortgages. "It gives them a running start. With us as a partner, credit unions can optimize the opportunity now in this market," Ghanem said.

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