Dorsa: I expect home prices and values to remain about the same. My observations reflect on the interesting decline in homeowner percentage on a national basis. In the first few years of this century, home ownership rates hit an all-time high of near 70%. Since that time, including the housing crash and recession, home ownership rates have dropped consistently. I recently heard a forecast from a Morgan Stanley market watcher stating if we look at the current level of home ownership and factor in pending foreclosures and perhaps even some of the shadow inventory, the rate may actually be less than 60% nationwide, which would be an all-time historic low. Since the previous two months in the fall of 2011 report [of] decreases in home values, I don't see much on the horizon to signal any reverse in that pattern until 2013.

Add to this the political election cycle and the ongoing congressional deadlock with regulations including the issues with the [government sponsored-enterprise] and I will stick with that forecast.

CUT: What do you expect will be consumers' biggest obstacles to taking on a mortgage in 2012? Dorsa: I still believe unemployment will remain the primary obstacle hovering over the housing market. Second to this will be the lingering debate on regulations, including Dodd-Frank and the portions pertaining to housing finance including the Qualified Residential Mortgage proposed regulation. In its current proposed form for QRM, very stringent underwriting criteria results in fewer home buyers qualifying, thus less lending. Portfolio lenders may have some advantages however, as credit union regulators are very conservative in their approach to residential home lending when it comes to asset/liability management issues. The results are that same conservative nature transcending through the lending channels.

Another concern is that credit criteria are less stringent in the staffing levels at many of the larger mortgage lending credit unions. While opportunities may present themselves, it takes people and processes to take full advantage. For many credit unions and CUSOs, this is still an issue and challenge.

CUT: In your opinion, what will be the credit union industry's greatest strength and weakness in mortgage lending? What should credit unions do in 2012 to build on the strengths and improve the weaknesses?

Dorsa: A qualifier to begin my answer to this question is to remind readers only a small percentage of America's credit unions participate in mortgage lending. The greatest strength in mortgage lending and in total for credit unions is trust. With the current arrogance moves by many of the nation's largest banks on the heels of the 2008 bailout and prior to that, the reckless lending practices, most consumers realize credit unions were not part of those problems. Moreover, the relationship credit unions have with their members adds a greater value for the trust issue since they are solidly aware of the aforementioned factors. This relationship has been strengthened of late with millions of consumers reacting to excessive bank fees and actually taking time to re-look at a credit union as a replacement for their bank checking account. This may in fact be the greatest stimulus for credit union mortgage lending ever.

The single largest weakness is simply the fact consumers including most credit union members are unaware of the fact many credit unions are as good and in most cases better mortgage lenders than banks. "If you build it they will come," only works if you tell them.

I now believe this is the single most important factor contributing to the extremely low level percentage of credit union member home mortgage loans held by credit unions. Granted, while the vast majority of credit unions do not engage in mortgage lending for many valid reasons, this one factor may change and control the entire outlook for the future. Of course, prudent underwriting and the issue of locality of most credit unions to the markets in which they lend would have to be mentioned as other strengths they have in mortgage lending.

CUT: What do you anticipate credit unions' most popular mortgage loan product will be in 2012 and why?

Dorsa: I would guess the most popular mortgage loan products in 2012 would be the ones who meet and satisfy the needs of consumers and members. As I write this, we still have proposals for the continued implementation of Dodd-Frank and in some cases, we may have to go back to the drawing board. In his recent letter to NCUA, CUNA President/CEO Bill Cheney stated credit unions are "overwhelmed by the regulatory requirements placed upon them" and this would certainly include regulations regarding mortgage lending. 

CUT: Do you expect the amount of real estate owned or REOs credit unions hold to grow, remain the same or diminish in 2012? Should they start taking specific steps to help their members buy REO? If so, what steps?

Dorsa: First, I expect the REO issue to remain about the same. With the exception of any serious uptick in unemployment and normal economic conditions with the credit quality contained in credit union portfolios, I don't see much change here.

To the question of assisting members in purchasing REOs once again, I will stick to my feelings that credit unions should be in sync with the competition. Granted, currently about one-third of all loan transactions are in the distressed or REO class and another one-third for first-time homebuyers, which may include some overlap here. It would likely be a good idea for credit unions to develop plans to deal with opportunities that are placed before us. I stress the need for planning. We need to work from a position of being prepared when the opportunities arise and not begin the planning once rules or regulations are proposed.

I contend good things will happen for credit unions if we are actively engaged in mortgage lending in assisting consumers purchase home or renegotiate their loans for the future. 

Aaron Bresko
Vice President of Lending 
Boeing Employees Credit Union
Tukwila, Wash.

CUT: Do you expect housing prices and home values in your area to decline, stay the same or rise in 2012?

Bresko: Relatively flat, maybe small depreciation the first half of the year and then bottoming out with slight appreciation possible the second part of the year. The biggest concern here is the continuing high unemployment and amount of housing inventory – both from the bank-owned perspective as well as consumers selling their homes.

CUT: What do you expect will be consumers' biggest obstacles to taking on a mortgage in 2012? 

Bresko: The most significant issues are around strict underwriting, low equity (appraisal issue as well as equity issue), and potential new regulatory requirements.  We underwrite to GSE (Fannie) guidelines and there are tighter criteria and price bumps built in. We have also seen inconsistencies and low values from our appraisers, which compound the already low equity members have in their homes.

To mitigate some of the underwriting issues, we have portfolio products that we do not sell and thus, can underwrite to different standards. We can take reasonable risk and keep the loan in our portfolio versus having to deny the application because it did not meet all the Fannie Mae requirements. We are also focusing on increasing our number of [Federal Housing Administration] loans to help members obtain home financing.

CUT: In your opinion, what will be the credit union industry's greatest strength and weakness in mortgage lending? What should credit unions do in 2012 to build on the strengths and improve the weaknesses?

Bresko: Our greatest strength in mortgage lending is our organizational desire to grow it from first-time buyers up through the jumbo market. We have a strong financial foundation and are able to sell and portfolio loans. We are in a great position to increase membership penetration and overall market share. To capitalize on this opportunity we're building capacity, reviewing all aspects of the operations for efficiencies and increasing our brand and product marketing for our mortgage program.

BECU's biggest challenge, similar to other credit unions, is our members' top of mind.  Many members and non-members do not think of credit unions when they think about purchasing or refinancing a home. We plan to get better here through expanded marketing in many delivery points.

CUT: What do you anticipate credit unions' most popular mortgage loan product will be in 2012 and why?

Bresko: Currently, our most popular product is our 12-year "NO FEE" first mortgage loan. We introduced it June 2011 and it has accounted for more than half of our volume since. We see this continuing next year at a slightly smaller clip. Popular traditional products will be the 30-year fixed rate conforming loans with the rates so low, as well as FHA products that will help us approve more members for financing.

CUT: Do you expect the amount of real estate owned or REOs that credit unions hold to grow, remain the same or diminish in 2012? Should they start taking specific steps to help their members buy REO? If so, what steps?

Bresko: For the most part, we expect it to be about the same. We peaked in early 2011 and have seen the volume reduce almost by half but don't see a further reduction in 2012.  We have a special program for consumers purchasing one of our REO properties; we offer 95% financing at a 3.99%, 30-year fixed rate with no requirement for private mortgage insurance.

Sterling Nielson
President/CEO
Mountain America Credit Union
West Jordan, Utah 

CUT: Do you expect housing prices and home values in your area to decline, stay the same or rise in 2012?

Nielson: Housing prices in the Utah market are remaining stable with the exception of high cost homes and selected markets with a high concentration of second homes. The good sign is the increase in home building in many areas of Utah. We don't foresee any increase in home values as the values are still quite strong compared to neighboring markets. 

CUT: What do you expect will be consumers' biggest obstacles to taking on a mortgage in 2012? Nielson: The most significant problem our members face is declining household income and more restrictive credit guidelines combined with depressed home values. While these have been issues for the past few years, they will continue to be issues in the future. To help our members with this, we look at their overall financial picture to identify ways that we can help them decrease their monthly expenses or improve their ability to get a good mortgage. Oftentimes, dealing with other debt helps them to qualify. If we can offer them a lower interest rate on an auto loan, that can make the mortgage more affordable.

We developed a new, high [loan-to-value] loan product to help members with depressed home values take advantage of the lower interest rates. We allow members holding mortgage loans with us to refinance at lower rates even with loan values in excess of 100%. While the rates offered for the product may not be the absolute lowest in the market, it has been a way to help our member who are stuck in their mortgage obtain a much better rate.

We offer a first-time homebuyer program with financing up to 100% of the home value. This product allows the members to get the prime rates with little or no down payment.

CUT: In your opinion, what will be the credit union industry's greatest strength and weakness in mortgage lending? What should credit unions do in 2012 to build on the strengths and improve the weaknesses?

Nielson: Our greatest strength is that we look at individual circumstances and work with members when they don't fit in the box. We have some flexibility in lending because of our ability to offer in-house products that make mortgages available to people that would not otherwise qualify. To build on this strength, we will continue to review our product offerings and think outside of the box, making sure we offer our members loans that meet their needs.

Our greatest weakness is time. Members want their mortgages done quickly, often more quickly than we are getting them done. To improve this, we are making a change in our loan origination system that will improve the flow of a file through the process. We are also in the process of restructuring our department, looking for ways to make things run more smoothly. 

CUT: What do you anticipate credit unions' most popular mortgage loan product will be in 2012 and why?

Nielson: Lines of credit with very low introductory rates. They will roll their entire mortgage into the home equity line to pay their mortgage. Once again, they are free to originate and offer the member a great deal of flexibility in payments.

CUT: Do you expect the amount of real estate owned or REOs credit unions hold to grow, remain the same or diminish in 2012? Should they start taking specific steps to help their members buy REO? If so, what steps?

Nielson: REOs will continue to decline in 2012. We're selling them at great prices and we are seeing the numbers decline each month. With the increase in new home construction, the home lots that many credit unions have been holding are now marketable. It's a great deal for the buyer and gets another REO off of our books.