One of the major contributors to the housing bubble and subsequent collapse of the market was overinflated prices. Now, believes one CEO, the opposite scenario exists.
Dennis Flannigan, president and CEO of $103.3-million Great Basin FCU, said about 30% of his CU's loans are in real estate, with 70% in auto loans. He told Credit Union Journal the relative stability of home prices and employment in Northern Nevada means conditions are "stable" compared to three or four years ago, the result being less anxiety when booking new mortgages.
"For most people if they have weathered the crisis so far and still have their jobs, they are probably OK," he assessed. "The real issue is home values are probably understated today and probably will lag for a couple of years. As more people get employment the inertia will move upwards in house prices as there is more competition."
As is the case with many CUs, Flannigan said Great Basin's underwriting standards have not changed in the aftermath of the crisis. He said the most important element is an examination of the applicant's employment and the employer, but GBFCU already performed income verification prior to 2004.
"We want to know the risk," he said. "We are not really doing more income verification, we just look at the industry they are in and the length of employment. We are looking for stability.
"We also look at home valuations, which we don't think will decline much more," he continued. "I am confident in the comps we are getting because the appraisers are overcompensating in my eyes. They are very hesitant to overstate values."
The quality of borrowers is largely good, he said. Flannigan estimated 70% of loan applicants, perhaps more, have good credit and good employment.
"It is a great time to refinance given the rates available now," he said. "Our processes have not really changed because we were always careful. Some banks did short doc loans, which we never did, but those are a thing of the past."
Great Basin is willing to write a mortgage loan on foreclosed or distressed properties, but only in an owner-occupied situation.
"I don't think there is any magic, you just have to write a good a good loan, which is the way it should have been done all along."
In 2011 Great Basin posted nearly $2.1 million in net income after paying $235,384 to the Corporate Stabilization Fund. Its net worth ratio was 7.35% ("well capitalized").
Despite the issues in the secondary market with Fannie Mae and Freddie Mac awash in red ink, Flannigan said there has been little impact on his CU. Fannie and Freddie still "pretty much determine the format of loans," he explained, and if someday there is no more Fannie or Freddie, "there still will be some sort of secondary market."
"All the financial institutions in the United States cannot hold on to these loans-somebody has to pick these up," he said. "The solution might be insurance companies, or some other entity, but there will be something."
