Credit Union Trade Groups Endorse Mortgage Plan That Harper Called 'Half-Baked'

Credit union trade groups, including state leagues, said the NCUA should allow federal credit unions to purchase mortgage servicing rights from other federally-insured credit unions — a plan that NCUA Chairman Todd Harper said was “half-baked.”

“Some credit unions have historically recognized mortgage-backed loans maintain a very low level of default, which make them highly favorable investment options,” Patrick Conway, president of the CrossState Credit Union Association, told the agency. “MSRs can potentially provide an ongoing stream of income to a credit union’s bottom line, given that the credit union understands and prepares for potential risks involved.”

In December, the NCUA board, under former Chairman Rodney Hood, approved a Notice of Proposed Rulemaking to allow federal credit unions to purchase mortgage servicing rights under some conditions.

Harper, who became board chairman once Joe Biden became President, voted against the proposal.

“There are many risks associated with mortgage servicing — interest rate risk, price risk, compliance risk, operational risk, liquidity risk, concentration risk, reputational risk, default risk and legal risk — just to name a few,” he said. He added that the proposal did not address how to handle those risks, but instead simply presented a list of questions that the board wanted commenters to address.

However, credit unions and trade groups contended that there are proper safeguards.

“FCUs, like PenFed, that are servicing their own mortgage loans devote significant resources to meeting the operational and compliance responsibilities associated with mortgage servicing,” James Schenck, president/CEO of Pentagon Federal Credit Union ($26.74 billion, McLean, Va.), told the NCUA.

The Cooperative Credit Union Association conducted a survey of its members, and members unanimously supported the expanded investment authority, President/CEO Ronald McLean said.

NAFCU also supported the proposal, Regulatory Affairs Counsel Aminah Moore said.

“This additional flexibility would allow smaller institutions who want to grow and sell their mortgages to have more options to sell while also allowing growth opportunities for the FCUs who purchase those MSRs,” Moore wrote.

Moore added that NAFCU officials believe that the NCUA should defer to credit unions on the best ways to mitigate risks associated with the purchases.

“These transactions do not pose a risk to the National Credit Union Share Insurance Fund or the safety and soundness of the industry as credit unions are adept at servicing their own mortgages and capable of making risk-based decisions regarding their lending portfolios to engage in appropriate investments,” Moore added.

CUNA also said that federal credit unions can manage the compliance issues.

“We believe an FCU can effectively manage its exposure to compliance risk through a comprehensive compliance program, which typically includes policies, procedures, processes, monitoring and an audit function regarding compliance with all applicable laws and regulations, including those that apply to mortgage loan servicing activities,” Luke Martone, CUNA’s senior director of advocacy and counsel, wrote.