Life after Fannie and Freddie and the tenuous future of the 30-year, fixed-rate mortgage may ultimately produce a finance industry that looks much different in the future.
That’s the prediction of Alan Bahr, director of lending at CUNA Mutual Group, Madison, Wis., who told attendees at the CUNA Lending Council annual conference that many “unanswered” questions remain about the future of mortgage lending. He urged CUs to stay abreast of changes that are coming.
Bahr said the federal government’s role in mortgage finance and the future of Fannie Mae and Freddie Mac must be addressed. “In addition, we need to determine if there’s a better way to originate, package and deliver loans to investors and, how to attract new private capital into the marketplace,” he said.
Bahr cautioned that the 30-year fixed-rate mortgage probably won’t survive without government involvement, pointing to growing congressional consensus that there should be some federal involvement in mortgage finance.
“Fact is, very few borrowers can raise 30-year, fixed-rate money,” Bahr says. “Though private capital solutions are preferred by many, the capital markets don’t like to provide long-maturity, fixed-rate funding. The only reason 30-year mortgages are viable today is that Fannie and Freddie back them up.”
Radical changes won’t come, according to Bahr, as long as the GSEs are the dominant secondary mortgage forces. As the GSEs are wound down, or reinvented, he urged credit unions to stay on their toes and look for new lending programs to emerge.
“Credit unions need to stay ahead of what’s being offered in the marketplace so they don’t lose their market share,” says Bahr, interjecting that credit unions should listen to what CUSOs and other aggregators are saying. “Select someone in your credit union to keep abreast of the new programs and products, and then disseminate that information to those who can take action on it.”
And though the future of mortgage finance could become extraordinarily complex with multiple loan programs offered, Bahr suggested that credit unions may have leverage with regulators that have shown sensitivity to the needs of small lenders.