With subprime mortgage lenders shutting their doors and huge players like Countrywide Financial Corp. and IndyMac Bancorp Inc. facing severe liquidity problems, these would appear to be the worst of times for mortgage lenders.
And for the most part they are. Yet some mortgage lenders are thriving, especially credit unions and small niche lenders, precisely because they have stuck to a conservative lending philosophy and decided to keep their loans in house instead of selling them in securitized packages to the market.
"Any portfolio lender that doesn't have to go outside for their funds or borrow in the secondary marketplace is doing well right now, because with other lenders having to tighten so much, they can pick and choose from good quality borrowers that are out there," said Fred Kreger, principal at mortgage brokerage American Family Funding Corp. and former board member of the California Association of Mortgage Brokers.
Consider Kinecta Federal Credit Union, the largest credit union by assets in L.A. County as ranked by the Business Journal and the twelfth largest mortgage lender among credit unions nationwide, according to First American Loan Performance.
Like other credit unions, Kinecta is a portfolio lender that funds home loans to its members primarily from customer deposits. More than 70 percent of Kinecta's $1.7 billion first mortgage loan portfolio consists of loans to borrowers with Fair Isaac Co. (FICO) scores above 720 (considered top-grade prime), another 25 percent to borrowers with FICO scores of at least 660 (considered prime grade) and less than 5 percent of loans to non-prime borrowers.
"We've been pretty conservative, because that protects our members," said Chief Executive Simone Lagomarsino. "Our members are owners of the loans. If we take on excessive risk, it's a negative impact to our members."
That philosophy is in stark contrast to the high-volume mortgage lenders that have dominated the marketplace in the last few years, selling off their loans often hours after they were made in huge securitized packages to Wall Street.
With such a good quality loan portfolio and the ability to obtain supplemental borrowing from the Federal Home Loan Bank, Kinecta Chief Financial Officer Mark Joseph said there has been no need to tighten underwriting standards as other mortgage lenders have done.
What's more, Kinecta is now benefiting as other lenders have tightened the screws on borrowers. "We've had some pickup in our broker business because other places have been getting crunched," Joseph said.
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