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Adapt To Changing Mortgage Markets

Additional tools and new strategies can enhance success among small lenders.

As several large institutions reduce or eliminate their loan aggregation or loan servicing businesses, smaller lenders are increasingly stepping into the breach. Credit unions, in particular, are seizing market opportunities and experiencing a steady growth in business. As Callahan & Associates has reported, credit unions originated more than 8% of all first mortgages during 1Q 2012, a record national market share for the sector.

Guided by a commitment to member service, credit unions prioritize high quality mortgage lending that helps to match their member with the right loan, with terms that are viable and sustainable. Not only has that approach protected most credit unions from the worst of the credit crisis, it is attracting hundreds of thousands of new members and new accounts.

In this dynamic housing market, many credit unions, like regional banks, community banks, and independent mortgage bankers, are taking steps to diversify and expand their businesses. Fannie Mae is seeing business growth from a variety of small to mid-sized lenders. So far this year, 42 smaller lenders have delivered loans to Fannie Mae for the first time.

Fannie Mae is making changes that respond to the needs of smaller lenders. Originators who want to become approved Fannie Mae sellers, for example, now encounter an easier, more transparent application process. A Fannie Mae sponsor will stay in touch throughout the process, ready to offer updates and answer questions. Fannie Mae also offers more than 50 recorded tutorials and job aids to help customers expand their skills.

As a matter of policy, Fannie Mae may establish lender-specific mortgage loan volume limitations, which may be applicable to whole loan and MBS sales and deliveries. Policies and procedures are spelled out in our Single-Family Selling and Servicing Guides.

Servicing is an important issue for many smaller lenders. Traditionally, credit unions have retained servicing as an important aspect of their close relationship with members. Thanks to such ties, credit unions are positioned to recognize and respond when a member encounters a financial problem. Such personal attention has contributed to the solid performance of credit union mortgage loans.

However, some credit unions are choosing to sell servicing on some or all of their origination volume to generate operating income and cash flow. They may offer members a slightly better interest rate if servicing on that mortgage loan is sold.

Another growing practice for smaller lenders is the use of a sub-servicer. This allows the lender to retain the value of the servicing asset and maintain a direct relationship with their member, while relying on the operational expertise of a sub-servicer to manage payment collections and loss mitigation activities.

Fannie Mae offers a variety of execution options that allow lenders to sell or retain mortgage credit and interest rate risk, as well as mandatory and best efforts executions and servicing-released options. With this range of options, credit unions can make the decision that is best for their business.

For example, Fannie Mae has developed execution structures that include the bifurcation of selling and servicing representations and warranties:

  • When originators sell servicing to a servicing buyer, Fannie Mae looks to the originator for selling reps and warrants and the servicing buyer for servicing reps and warrants.
  • At present, more than 50 originators are approved to participate in an execution structure that includes bifurcation of selling and servicing reps and warrants.
  • Fannie Mae expects to offer approved originators additional servicing structures with additional servicing buyers by the end of the year.
  • Fannie Mae is expanding the eCommitONE/Servicing Execution Tool to offer bifurcation of selling and servicing rep and warrant structures for sellers that want a servicing-released option for single loan whole loan commitments to Fannie Mae.

Fannie Mae provides more than 1,100 lenders of all sizes with access to credit and liquidity. While our customers business strategies may change, Fannie Mae’s business goal remains constant: to support a stable, liquid, and efficient mortgage market.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
May 27, 2014

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