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Ask Tommy: Your QC Expert ... Credit Unions and Loan Quality

Tommy A. Duncan
Nov 01, 2010

Credit unions have the highest loan quality so far in 2010, based on post-closing quality control audits performed by Quality Mortgage Services LLC (QMS), a national compliance solution provider. In the study by QMS, nearly 50 percent of credit union loans are rated as “Excellent” whereas 34 percent of bank loans were ranked “Excellent” and non-bank loans ranked 22 percent in the “Excellent” category. These loans were audited for federal regulatory audits, credit and collateral analysis, and mortgage fraud. Non-banks took the lead in the “Good” ranking, where nearly 61 percent of the loans had minor loan defects, but were very marketable on the secondary market. Banks ranked at 56 percent and credit unions ranked at 43 percent. For the credit unions to score so well in the “Excellent” ranking, there is a noticeable difference in the credit scores and ratios. The average credit score coming from credit unions in 2010 is 761, whereas in 2009, the average credit score was 772. Banks averaged a score of 755 for 2010 and 2009. The non-bank credit score average came in at 737 for 2010 and 722 for 2009. Credit unions maintained a high credit score average of 761 for loans that ranked “Good” in 2010, while banks and non-banks had an average credit score of 736 and 710, respectively, in the “Good” category. When analyzing the percentile of pooled loans for purchase on the secondary market, credit unions and banks ran very closely at 92.17 percent and 91.13 percent respectively of loans with low loan defects. Non-banks had 83.03 percent of mortgage loans with low loan defects, which is the same percentile for 2009. The credit union average back ratio is another measurement that sets the credit union’s loan quality apart from the other lending institutions. The average back ratio for credit unions in the “Excellent” category currently came in at 33 percent where banks had an average of 36 percent and non-banks had 35 percent average for back ratios. In the “Good” category, credit unions maintained the lead with an average of 34 percent, banks were at 36 percent and non-banks had a 41 percent back ratio average. Credit union borrowers are financially a stronger borrower based on the results of post-closing audits. Credit unions and banks are very close in their averages for potential repurchases. Credit unions had a 7.09 percent ranking in the “Fair” category where loan defects may warrant a repurchase claim. Banks had a 7.78 percent “Fair” ranking and non-banks had a 14.21 percent loan defect ranking as “Fair” that may provoke a repurchase. When it comes to fraud for housing, credit union had a 0.75 percent ranking in the “Poor” category, banks had a 1.10 percent ranking and non-banks had a 2.76 percent ranking. This “Poor” category is where fraud for housing was discovered during the post-closing audit. The “Poor” category has nothing to do with a loan in default, but a ranking where the loan should have never been made. Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528, ext. 124 or e-mail taduncan@qcmortgage.com.