December 2016 - Getting Serious About Diversity

TheMReport — News and strategies for the evolving mortgage marketplace.

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40 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Mortgage Lending Drives Credit Union Growth Membership, originations, and shares are all on the rise. I n anticipation of the National Credit Union As- sociation (NCUA)'s official data release, Callahan & Associates reported they expect double-digit loan growth for the ninth consecutive quarter in Q 3. First mortgage originations have been a major driver of balance sheet growth for credit unions, and the third quarter is no different. Overall loan growth is projected to be 10.2 percent for Q 3, while loan originations are expected to increase by 10.6 percent, topping $343 billion. With an increase of 9.2 percent over the last 12 months, first mortgage balances ranked second behind only auto loan balances (13.8 percent) in Q 3, according to Callahan, which had access to 90 percent of the soon-to-be- published NCUA data to make its forecasts for Q 3. Loan quality improved in Q 3 as well; delin - quency rates on credit union loans declined by 1 basis point over-the-year for the quarter. "Credit unions are heading into the end of 2016 with momentum in all key areas. Membership, loan, and share growth are all at or above the pace recorded one year ago," Callahan partner Jay Johnson said in an article on CreditUnions. com. "With all this momentum, now is the time for credit unions to be ambitious and take on initiatives that will allow them to capture new opportunities." Recently-released Home Mortgage Disclosure Act (HMDA) data indicated that credit unions' share of the mortgage industry held steady at 6.1 percent from 2014 to 2015 (overall, total first mortgage originations expanded by $461.4 billion, or 33 percent, to $1.8 trillion in 2015, according to the HMDA data). "While credit unions did not see growth in market share, it is encouraging to see them maintain share in a growing market, while banks' market share declined," Callahan & Associates' Director of Industry Analysis Sam Taft said. "This could be due to consumers continuing to trust credit unions with their real estate financing needs and increasing visibility throughout the country of the value proposition credit unions offer." Loans to Foreign Nationals Present Unique Risks Lenders can minimize issues with higher interest rates, down payments, and reserves. L enders will need to adequately mitigate the unique risks associated with mortgage loans made to for- eign nationals in the United States as exposure to these loans in residential mortgage-backed securities increases, ac- cording to Moody's Investor Service. What are the unique risks presented by mortgage loans made to foreign nationals in the U.S.? "The main risks in lending to foreign na - tionals relate to a lack of credit history and verifiable income," Moody's Analyst Padma Rajagopal said. "Others include flight risk, foreign-exchange risk, and the possibility of deportation and other consequences of immigration policy." Lenders can mitigate the risk associated with these loans in a variety of ways, includ - ing charging higher interest rates, requiring down payments, or requiring higher reserves. Larger down payments mean a larger investment in the property for the owner, which makes it less likely that they will default on the loan and walk away. Lenders' LTV requirements for foreign nationals outside the U.S. is typically between 50 and 70 percent; by comparison, some lenders require an LTV of up to 97 percent for U.S. citizens and permanent residents, according to Moody's. Borrowers are more likely to make con - sistent and timely repayments with higher reserve requirements in place, Moody's reported. Currently, the reserve require- ments for jumbo prime loans kick in at three months into the life of the loan; they typically start at 12 months for loans made to foreign nationals to whom the property will not be their primary residence. "To further protect their interests, lenders can require a portion of reserves to be held in a U.S. bank account or, if they are a depository, in an account at their own institution," Moody's said. Other ways for lenders to mitigate risk associated with loans made to foreign nationals include requiring a co-signer, requiring automatic payments, or requiring 12 months of credit card statements. Other lenders mitigate risk by financing only certain types of properties, according to Moody's. For example, they might finance only single- or two-family homes, since multifamily properties often create a landlord-tenant situation where the property owner must collect rent from a tenant in order to make their mortgage payments— which may be challenging if the property owner (borrower) lives outside the U.S. or has not lived in the U.S. very long, Moody's reported.

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