Your credit union’s asset size might preclude you from investing through broker/dealers but it doesn’t preclude you from loan growth or generating interest income in the lucrative real estate loan market.
So, why aren’t small credit unions taking advantage of loan participations en masse to accomplish this goal?
“Many credit unions are simply not aware they can, or not sure how to get started” said David MacMillan, COO of State Financial Network, LLC (SFN), a wholly owned CUSO that has been providing mortgage services to credit unions since 1986. “We brought credit unions into this market and they are very happy with the results. For some it is a one-time transaction and for others it’s part of a regularly planned investment strategy.”
Broker/dealers typically used for sourcing loan participations usually offer relatively large loan participation pools that appeal only to the Goliaths. SFN is able to coordinate transactions in amounts that make sense for mid- and small-sized credit unions. This is important because real estate loans can produce a greater yield than other loan types. Loan participations give credit unions the opportunity to generate revenue that can be lent to their members. In short, loan participation products help credit unions grow.
“The advantage [for smaller credit unions] is they can supplement their organic real estate lending with loan participations,” MacMillan said. They often gain geographic and loan product diversity as well. “The loans we make available for participation are adjustable rate mortgages from the Mid-Atlantic States.”
Could it be that smaller credit unions worry about risks associated with growing their assets too rapidly?
Credit unions are required to maintain capital in relation to their assets before prompt corrective action takes place. Currently, PCA above 7% is considered well capitalized. “PCA ratios are a concern,” Mac Millan said, “but they can be managed. We’re a trusted partner in the process.”
Loans available for participation are residential, primary residences underwritten to industry standards. In the loan participation program, SFN services the loans sold by its credit union parent. SFN also offers a complete array of mortgage services to smaller credit unions—origination, underwriting, compliance, servicing, etc.
SFN’s primary market is the mid-Atlantic region, which is why MacMillan is eager to attend CUNA’s Government Affairs Conference in Washington, DC this month. When you drop by SFN’s exhibitor booth, don’t expect hard sales tactics from MacMillan but a warm welcoming handshake instead. “I always enjoy meeting fellow credit union professionals to hear about and learn from their successes and challenges. Who knows, we just might find we have a product that satisfies a particular need.”