The Federal Savings Bank Reaches Out to Credit Unions

A Chicago bank said it has begun seeking referral agreements with credit unions for its reverse mortgage program.

The Federal Savings Bank announced Monday that it has extended its reverse mortgage program to credit unions to better serve their growing population of members entering retirement age.

According to NCUA data, only 21 of the nation’s 5,689 credit unions granted reverse mortgages last year. The Federal Savings Bank originated and sold about 450 federally insured reverse mortgages worth $65.7 million last year, up from $54.6 million in 2016.

In a typical deal, homeowners with a house worth $100,000 and $20,000 left on their mortgage might get about $40,000, of which $20,000 would be used to pay off the old mortgage and the other $20,000 would be would be available to the homeowners. After both die or move out, the owner of the reverse mortgage owns the house.

Reverse mortgages gained a bad reputation in the 2000s because the field attracted predatory lenders who led seniors into agreements with loopholes or insufficient protections that allowed some to be forced out of their homes.

Mike Crossett, executive vice president of The Federal Savings Bank, said regulations enacted after the Great Recession have created a space for reputable lenders to allow qualified seniors to extract a portion of their home equity to help support their retirements.

The Federal Savings Bank was created in 2012 as many of those regulations were coming into existence.

While the bank generates a high volume of residential mortgages, most are bundled and sold on the secondary market.

It had $363.7 million in assets as of Dec. 31, 2017. This included $241.7 million in loans held for sale, but only $68.9 million in loans held for investment.

Its business model is also reflected in the fact that it has only two bank branches, both in Chicago, but more than a dozen lending offices across the country. The bank has the equivalent of nearly 900 full-time employees; credit unions with that many employees have $3 billion to $6 billion in assets.

Crossett said the bank is seeking service agreements with innovative credit unions that want to provide a reverse mortgage option for members, rather than lose them to another credit union or bank. The bank does not yet have a relationship with a credit union, but its representatives have found good prospects for its new Member Reverse Mortgage Program from small credit unions with only one or two branches to much larger institutions.

“We’re a fit across the spectrum,” Crossett said. “Our real target is to find the right channel—credit unions who share the same values.”