BY ALEC HOLLIS
Since the enactment of P.L. 95-22 in April 1977,expanding lending authority for credit unions, residential mortgage lending has become an important and growing facet of the credit union model. Today, granted mortgage loans are as high as they’ve ever been. Credit unions posted a record-high of $172 billion in 2016, and may again reach a new high this year, as 2017 year-to-date numbers have surpassed 2016’s year-to-date.In order for credit unions to maintain and grow their importance in this vital market, they should consider revisiting secondary marketing. Managing the financial risks inherent in secondary marketing operations remains critical for credit unions.
Secondary market risk management aims to profitably deliver loans to investors while minimizing risk to the institution. For credit unions originating with the intent to sell, this risk-management process is not only essential, butit is also receiving more regulatory scrutiny of late.
Origination Volume and Production Sold
In the face of increasing mortgage production, credit unions have actually reduced first- mortgage production sold over the past five years, as Figure 1 demonstrates. Since the 2013 steepening event, production sold dropped significantly and has remained near 40% since then, despite a significant rebound in origination volume. As of the third quarter this year, first mortgage loans sold represented 41% of first lien mortgage production.