Over the last 10 years, $23.7-billion State Employees' Credit Union in Raleigh, N.C. has not had a single mortgage handed back to it by an investor due to poor underwriting.
Mark Coburn, SVP-loan servicing, told NMN affiliate Credit Union Journal there are a number of reasons for that glittering record, but the biggest is it underwrites mortgages in such a manner there is no loan it sells on the secondary market that it would not keep on its portfolio.
"A few years ago many lenders cut corners with their underwriting standards, including not documenting all of the borrowers' income, but we kept up our standards," he said. "We do normal underwriting at branch level and in our central office before the loans are sent to attorneys for closing."
By "normal," SECU does extensive checks on the borrower, Coburn explained. He said the credit union fully verifies all income on the applications, reviews tax returns and self-employment income, and verifies employment and length of employment.
Due to increased scrutiny from regulators and legislators in the wake of the housing crisis and recession, Coburn noted the mortgage industry is moving toward holding lenders responsible if a borrower does not have the capacity to repay a loan. SECU welcomes this development, he said, as it already made sure not to put its members into situations that were not good for them.
Wearing the 'White Hat'
"This is a very competitive industry. People want to get loans and grow their numbers. But we did not feel it was giving good service to our members to give them an interest-only loan that would get them into a house they couldn't afford. We have no commissions anywhere in our system, so we never put a member into a house they couldn't afford."
SECU is a consumer advocate, Coburn said, and as such it generally supports efforts to add more compliance. "We wear the white hat, so we want the guilty parties to pay."
But with that said, the credit union has never caused confusion to its members in the past, meaning some of the new disclosure requirements and other policies are "unnecessary" because they do not apply.
"There is no need for some of these because we did not cross those lines," he declared.
The credit union said it welcomed the recent edict from the Consumer Financial Protection Bureau regarding force-placed insurance. SECU said its practices have resulted in less than 1% of its mortgages ever requiring force-placed coverage, and just 0.6% of its mortgages requiring force-placed insurance for more than 60 days. It attributed these low percentages to its mandatory escrow requirements (with interest earned by members on their escrow accounts), direct contact with members upon initial coverage cancellation and its proactive Mortgage Assistance Program.
SECU is the servicer for more than 125,000 mortgages with balances in excess of $12 billion.
One unique aspect of the CU's mortgage lending is it does not write 30-year, fixed-rate mortgages. Instead, its most popular real estate loan product is its two-year ARM, which has a 30-year term, and a maximum rate increase of one percentage point every two years. SECU does offer fixed-rate mortgages with 15- and 20-year terms.
In a move that is unusual for credit unions: it keeps the majority of its loans in its portfolio. Coburn said it discontinued selling mortgages to Fannie Mae and/or Freddie Mac approximately four years ago after the GSEs made changes to their risk-based delivery pricing.
"The two-year ARMs are good loans for the credit union and the members," he said. "We hold 77,000 loans totaling $9.2 billion in our portfolio. They are not risky, because when interest rates go up the rates on these mortgages will go up, but they won't go up so quickly that members won't be able to afford the payment."
8,000 Get Mortgage Assistance
For members who face job loss or other income impairments SECU has a mortgage assistance program. The program has served 8,000 members since 2009 and Coburn said it mostly has helped people stay in their homes. More than 70% of those 8,000 people have resumed making full payments.
In 2011 SECU posted $196 million in net income, after paying $51.8 million to the Corporate Stabilization Fund. Its net worth ratio was 7.6% ("well capitalized").
According to the 5300 Report, of its 10,152 total delinquent real estate loans, just 102 were in the fixed-rate category and 587 were adjustable-rate loans. It listed 4,119 "other" delinquent real estate loans.
"Our number of foreclosures per mortgages is extremely small," Coburn said. "Our mortgage program is in excellent shape with the lowest delinquency and charge-off rates of any institution around."
