Central Bank to relax rules on Credit Unions giving mortgages?

Discussion in 'Credit Union issues' started by TheJackal, Dec 19, 2017.

  1. TheJackal

    TheJackal Frequent Poster

    Posts:
    187
    Last edited by a moderator: Dec 20, 2017
    Credit unions to take on banks with mortgage lending offers

    https://www.independent.ie/business...ks-with-mortgage-lending-offers-36420248.html


    Loan rates are expected to be in line with the average offered by banks, but will not undercut them, a person familiar with the situation said.


    Global loan servicing firm Link ASI, which used to be called Capita, has been signed up by the league to provide administrative services for the loan offering.

    The underwriting and assessing of the applications will be done by Link ASI, but the final decision on whether to grant the mortgage will be made by the individual credit union, and the funds will come off that credit union's balance sheet.

    Current rules mean credit unions can only issue 10pc of their individual loan books in long-term lending, such as mortgages.


    However, the Central Bank is reviewing these rules, and a successful mortgage pilot project will be key to persuading regulators to relax the rules.

     
    Last edited by a moderator: Dec 20, 2017
  2. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    33,607
    This is nonsense.

    Let's take one of the largest Credit Unions - St Raphael's - the Garda Credit Union.

    They have around €300m in shares and €100m in loans to members.

    Let's say that the Central Bank allows it to double the long-term lending from 10% to 20%. That would be €20m in mortgages.

    If the average mortgage is €200k - that is just 100 mortgages. Or 10% of its shares, would be 150 mortgages. And St Raphael's is a giant by comparison with most other credit unions.

    There is no way that it is viable for a lender to set up the infrastructure for 100 mortgages. The assessment, even if it is done by Link ASI, would need to be processed by the Credit Union. If the CU administers the loan, they will need to comply with all the regulations. If the loan goes into arrears, they will have to comply with the CCMA.

    Anyway, it's not a good idea to lend 20% of your loan book to so few loans to a very undiversified group. A long Garda strike and these mortgages would be in deep trouble. This probably doesn't affect the Gardai so much, but what about a large Community Credit Union. A closure of a local factory would have a disproportionate impact on the ability to repay the mortgages.
     
  3. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    33,607
    The Credit Unions should set up a Building Society and fund it with some of their capital. They should encourage their shareholders to put their money on deposit in the Building Society rather than in the Credit Union.

    Then the Building Society could gear up to being a proper lender with a diversified mortgage book.

    Brendan
     
    Merowig and newirishman like this.