In a recent survey, 49% of credit unions responded yes when asked if their credit union would make home loans outside of qualified mortgage (QM) guidelines. Which half do you fit into? Better still, where do your members fit?
For every credit union, this is always the starting point. How do we serve our members the one member needing the loan and the collective whole counting on their local credit union to lend prudently?
When the QM rule was first announced in January 2013, CoreLogic estimated that 53% of purchase loans done in 2010 would have fit the QM rule outside of the temporary seven-year exemption given to Fannie Mae and Freddie Mac. CoreLogic went on to estimate nearly a quarter, 24%, of the loans that wouldn’t fit were due to exceeding the DTI limit of 43%. Although the general QM has the 43% DTI limit, the small creditor QM exception that many credit unions would fit into does not set a maximum DTI, nor does the ability-to-repay (ATR) rule.
Nonetheless, a sizeable group might fall out of the QM lending world. How many of them might be your members? Or how many are not your members now but could become your members? After all, even CFPB director, Richard Cordray, has stated on numerous occasions that non-QM loans can be excellent loans. As long as they are properly underwritten loans, they should meet the ATR requirements and reduce litigation risk.
With that notion in mind, it is no wonder nearly half of credit unions would consider lending outside the QM guidelines. Many credit unions have demonstrated a track record of sensible underwriting philosophy, mostly avoiding many of the products that layered too many risk elements that were so prevalent in the run-up to the housing crash.
As we move further into the purchase market of 2014 it will be imperative for every credit union to decide how they will best serve their members’ mortgage needs. Which gets us back to the second part of our equation — how to create a niche non-QM program that still protects all members? This is where MGIC can assist.
As the nation’s premier private mortgage insurance provider, MGIC insures both QM and non-QM loans. Adding MGIC MI to loans dramatically reduces the exposure risk of the credit union. In fact, with standard agency coverage levels, a credit union can have less exposure to its loans above 80% LTV with MI than below 80% LTV without MI. (Credit unions can set their own coverage level requirements if they hold loans in portfolio rather than sell to Fannie Mae or Freddie Mac.)
MGIC’s dedicated credit union team has worked with credit unions across the country to develop niche programs that help them serve both individual member needs and balance the needs of the entire membership. These niche programs have included ARM, 3% down payments, and jumbo loans, which serve as a significant way to separate the credit union from competitors in the eyes of both local realtors and homebuyers.
Credit unions have a tremendous opportunity in today’s mortgage lending. Is your credit union taking a look at all of them?For more information, visit MGIC’s website dedicated solely to credit unions at www.cu.mgic.com.
Chris Perry is the national credit union manager at MGIC.