What the G-fee Increase Means for Your Credit Union, the Industry

by: Greg Spurgeon, Vice President Secondary Marketing, TruHome Solutions

Recently, the Federal Housing Finance Agency (FHFA) announced Fannie Mae and Freddie Mac’s guarantee fees (g-fees) on single family mortgages will increase an average of 10 basis points, effective later this year. Or, in other words, lenders will likely raise interest rates on all mortgage loans backed by the two major government-sponsored enterprises (GSEs) to account for this.

Upon first hearing this news, you may think it does not apply or is irrelevant to your credit union. But not so fast. Let me tell you why.

For every rhyme there is a reason, and the FHFA’s g-fee increase was all part of a larger goal: to boost participation in the mortgage market by private firms. The housing market collapse essentially spooked private investors—so much so, in fact, that a whopping 90 percent of our country’s mortgage market is now supported by government-controlled entities. Even Fannie Mae CEO Timothy Mayopoulos admitted, “We need to shrink.” But you’re still wondering how this affects your credit union.

Between the revival of the U.S. housing market and FHFA directives like the guarantee-fee increase, the private capital market will eventually begin to open up. And when it does, your credit union’s mortgage department will most certainly want to be prepared to attract those investors. After all, no credit union wants to rely 100 percent on GSEs, as diversification of secondary market outlets is a necessary part of risk management.

So let me ask you this: Do you think private investors prefer to work directly with hundreds of separate credit unions? Think they enjoy monitoring each and every CU to ensure they have implemented and are following proper quality control and compliance procedures? The sobering answer is “no.” So what’s a credit union to do to appeal to these much sought-after private investors? The answer is mortgage CUSOs.

CUSOs provide CUs easy access to the private mortgage investment market.
Because mortgage Credit Union Servicing Organizations (CUSOs) work with several different credit unions, they have a high enough mortgage volume to attract and retain top-notch compliance and quality control management.  The volume also puts them on the radar of Fannie Mae and Freddie Mac, each of which has extensive lender oversight programs.  Private investors are aware of this and thus, realize their risk is less when dealing with CUSOs — and their robust quality control.

The mere fact that CUSOs are aggregators of mortgage loans is attractive in itself to private investors. Efficiency is everything when making investments and the sheer volume of mortgages originated by CUSOs means greater returns for the fixed costs investors already must incur simply to do business at all with mortgage lenders. Plus, working directly with one large counterparty as opposed to several smaller credit unions saves an investor valuable time. And, as they say, time is money.

Prepare now for secondary market success later.
As a result of this most recent FHFA development, I encourage you to prepare for the return of private capital to the mortgage investment market. Explore a mortgage CUSO now and take advantage of its private investor connections when the market rebounds. As the Vice President of Secondary Marketing at TruHome Solutions (a mortgage CUSO in Lenexa, Kan.), I can assure you that CUSOs have already begun courting private investors and are in a position to capitalize immediately upon the return of the market. Considering the housing market has seen a consistent upswing in new construction and mortgage applications for several months in a row and now, the FHFA-directed g-fee increase, it’s likely that the private capital participation will eventually bounce back and mortgage CUSOs are already knocking on the door.

Don’t have a mortgage department? Now’s the time to get one.
Interest rates on 30-year fixed-rate loans have been under 4 percent for months, resulting in a massive influx of refinancing activity and new home loans. Don’t allow your credit union to miss out on this surge in business. A mortgage department will help generate higher deposit balances, greater checking penetration and more net income for the credit union. And by outsourcing your mortgage solutions to a CUSO, your CU is relieved of keeping up with the constantly changing regulatory requirements, leaving you more time to focus on your member relationships.

Greg Spurgeon is Vice President of Secondary Marketing at TruHome Solutions, a Credit Union Mortgage Service Organization, providing a full range of private label services to credit unions (including sub-servicing),located in Lenexa, Kan. www.truhomesolutions.com