FORT WORTH, Texas — Will the changes made by the Federal Housing Administration and Urban Development Agency cause more credit unions to become FHA lenders?

Commissioner Brian D. Montgomery announced an expansion of its FHASecure program to help troubled homeowners refinance mortgages at a recent hearing of the House Financial Services Committee recently. And Committee Chairman Barney Frank's (D-Mass.) draft housing proposal contains modernization and streamlining changes that will also greatly add to the agency's reach. But will it be enough for CUs to buck what many thought to be bureaucratic obstacles?

That's a big yes, according to Linda Clampitt, vice president of CU Members Mortgage here, (www.cumembers.com), which is an approved FHA lender. “The FHA product will be a very big product in the next year especially given the changes also made by Fannie Mae and Freddie Mac in pricing. Credit unions will have to decide to do what I believe to be in the best interests of members.”

CU Members Mortgage, a division of Colonial Savings, provides mortgage services to more than 850 credit unions, CUSOs and leagues nationwide. It originates more than $3 billion in FHA, VA, conventional and single-close construction loans annually, and is one of the largest servicers of mortgage loans in the United States, with a portfolio of $12.5 billion.

Fulfilling FHA lender requirements has been a harder task than conforming loans, said Clampitt, and that's a big reason why many credit unions haven't worked FHA programs extensively. “Many credit unions that have gotten in doing mortgages in the last few years have also done very well with just plain vanilla,” Clampitt said. “That business has been very good so they haven't had to do many FHA loans.”

The learning curve is also long. “Mostly, credit unions trained people from within to do mortgages when they expanded their mortgage departments, and due to the complications of becoming FHA lenders, that wasn't a big priority,” she acknowledged. Particularly when other options, such as CU Members Mortgage already has the expertise and staff to make doing FHA loans far easier and faster. “Yes, it's true that any credit union can do FHA loans, but those that want to earn fees need to become an approved correspondent. To make doing that easier, we've developed a basic manual to become an approved HUD member. When a credit union completes that package and sends it to us we finish it and submit it for them.” Clampitt said that what CU Members has done is simply streamline the process as much as possible so that more CUs can be in the position of doing FHA loans. “We've only shored it up for them.”

In the last several weeks some 20 credit unions have asked for that FHA package, she added, “So we're seeing a lot more interest.” That's an indicator of the interest level that's still to come as other lenders tighten up on mortgage requirements and the credit crunch makes getting loans harder still.

Of CU Members Mortgage 850 CU clients, less than one-third are doing FHA loans now, said Clampitt. Why? “It's getting over the fear of the unknown,” she said. “But FHA will be the next hot product in the months to come. We can offer a ton of training to help them, but each credit union must program its own products. Credit unions are trying to do a good job at this, to stay on top of it. And we're getting more requests for attendance at out Webinars and other teaching offerings. I see that and I'm happy to see it.”

FHA will be hot because of changes in the rate and credit environment, Clampitt explained. Loan amounts over $417,000 will go into separate pools and they will have to be priced higher than standard loans for that price, probably about 150 basis points to 300 basis points higher. However, down-payment requirements will be 1.5% rather than 3%.

Growing the market share of the CU mortgage portfolio is a major topic of discussion, too, Clampitt said. “Many credit unions don't want to start a mortgage department of their own because it's labor intensive and requires a lot of expertise, so they look to do it through a third party, whether it's a CUSO or us in order to protect the member relationship.” Gone are the days when many CUs would refer a mortgage inquiry by sending a member to Countrywide, especially now, given that Bank of America is awaiting approval to absorb Countrywide.

To avoid any problems with third party relationships, upon which NCUA has brought the hammer down, Clampitt said they've prepared a response. Owing to huge losses, both in outsourced auto lending and real estate lending, NCUA has issued a series of Letters to Credit Unions that set out increased due diligence requirements.

“We've put a whole due diligence package of our own together, based exactly on just what the NCUA is asking for. To satisfy themselves, our credit unions wanted and needed our help in this, and we've navigated those waters very well,” Clampitt said. “Credit unions need to read and verify everything; it's a two-part process.” She said that too many CUs were worried unnecessarily about the letters from NCUA, but that the agency and Board Member Gigi Hyland clarified the requirements in a series of Webinars. “That soothed things a lot.”

To keep other vendors from copying its own due diligence package, CU Members Mortgage requires its CU clients to sign a confidentiality agreement. “That's not just because we don't want our competitors to copy the work we've done. It's more so because we provide our own audits, the financials, the IT structure and so on. That's proprietary information we have to protect.”

CU Members Mortgage has been through audits by the Office of Thrift Supervision (due to its parent, Colonial Savings) by the Department of Housing and Urban Development, Fannie Mae, Freddie Mac and its own independent accounting firm.

“This is the time, the perfect time for credit unions to grow into premier mortgage lenders, to bring more credit unions into the business to grow market share,” Clampitt said. CU Members Mortgage is looking to grow that share from 2% to 10%, a goal proposed by others in the industry, including ACUMA and Prime Alliance. That will mean a corresponding growth at CU Members Mortgage, which is fine with Clampitt. “Last year we were just shy of $2.9 billion. Through February of this year we have $543.2 million. And those are all first mortgages.”

The strategy is for them to add more CU clients (this year they've added 200 credit unions) she said.” They are picking up steam and they are marketing much more effectively, too. We help there, too, with materials for mortgage promotions, direct mail, inserts, helping to organize open houses, etc. We've added 10 staffers in the last few months.”

Credit unions should capitalize on the huge mistakes made by others in the mortgage arena, and not step back in fear. “I encourage credit unions to make a move now and for those already doing mortgages to get even more involved. It's good for the member, it's good for the credit union and there are plenty of entities out there that can help them safely manage the risks and have the knowledge to make good loans. We're not the only ones wanting CUs to stake that claim as providers of home loans.” Clampitt mentioned CU National, CUMAnet, MyCUMortgage and a number of mortgage-related CUSOs that are all involved in growing the credit union mortgage footprint.

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