Wednesday, April 24, 2013

Navy's 100% LTV Mortgage -- Phenomenal or Ridiculous Product?

The business press is beginning to scrutinize Navy FCU's mortgage practice of providing 100 percent financing without private mortgage insurance.

The latest iteration is an article in the Washington Business Journal (paid subscription).

"Looking for signs of a housing bubble? Check this out: Vienna-based Navy Federal Credit Union is marketing 100 percent financing, no-money-down mortgages."

Katie Miller, VP of mortgage products, says "this product is phenomenal for homebuyers," but Jerry Hanweck, a professor of finance at George Mason University, said "that's ridiculous" and the product "defies the basic rules of good real estate lending."

According to the article, Navy originated $740 million of these 100 percent LTV mortgages in 2012 and two-third of the borrowers were first time home buyers.
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4 comments:

  1. AnonymousApril 24, 2013 at 12:08 PM

    Keith - Does the NCUA's NCUSIF have enough in reserve to cover NAVY FCU in the event it goes kaput? Hoping they are too big to fail. But, just in case does the NCUSIF have enough coverage? Will GAAP allow the entire credit union community to start reserving now for the NCUSIF assessment on this soon to burst bubble?

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  2. Keith LeggettApril 24, 2013 at 12:29 PM

    Navy has almost $54.3 billion in assets. The NCUSIF has a net position of $11.3 billion.

    To your comment on being too big to fail, Debbie Matz stated in a Bloomberg article that it is unlikely that Navy FCU will be designated as a nonbank SIFI.

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    Replies
    1. AnonymousApril 24, 2013 at 1:54 PM

      NCUSIF's net position of $11.3 billion, is before those pesky legacy assets are considered isn't it? That fund is still in the hole.

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    2. AnonymousApril 24, 2013 at 1:57 PM

      Clearly Navy should be considered a SIFI as far as NCUA is concerned. I guess that's one of the perqs (of Matz) having a vote in FSOC meetings.

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