Credit unions pave way towards a centralized mortgage system model

By August 30, 2017Articles
The credit union movement is set to become a significant player in the mortgage market by the end of 2017. At the Irish League of Credit Unions’ (ILCU) Annual General Meeting earlier in April 2017, credit unions voted in favor of a centralized structure that should provide assistance with the administrative burden related to mortgage lending.


How will the centralized system operate?

This centralized system will allow individual credit unions take their own respective decisions in regards to mortgage lending. They will be able to offer mortgage loans directly to members while the ILCU will be in charge of the administrative requirements for the lending process. Under this new system, credit unions will also receive relevant support to be able to lend up to 550M Euros which is the maximum sum allowed under the Section 35 lending limits. Nonetheless, the ILCU wishes to extend this limit. This consensus is the fruit of minute consultations between the ILCU and credit unions.

The new role of credit unions will play

It has been a while already that credit unions have been seeking to expand loan services by including mortgages. The reason behind is that there has been a high demand from credit union members. Credit unions will now pave the way for diversification in the current mortgage lending market, according to Ed Farrell, Chief Executive of ILCU. It is expected that credit unions will henceforth realize their full potential. Those seeking mortgage will also be offered viable alternatives compared to the conditions actually set by mortgage lenders. This new solution should also increase loan-to-asset ratios in the country. Currently, credit unions are solely allowed to lend 10 percent of their total loan book on terms that are of ten years minimum. This limit is labeled as “outdated” by the Credit Union Development Association (CUDA) that is pushing for a liberalization of rules.

Changes to be expected with this reform

Credit unions are expected to transform into full-service outlets to cater for the financial needs of consumers. They will operate differently from banks as they are not required to give out profits to shareholders. First-time buyers, homeowners trading up as well as those of affordable housing scheme are expected to be the group taking up the new credit union mortgages. Ciarán Mac an Bhaird, an academic at Dublin City University, also claims in a report that once credit unions enter the mortgage market, consumers will benefit from the competition. Earlier this year, the Bank of Ireland warned against a possible rise in the interest rate due to the high numbers of variable home loans. The diversification proposed by credit unions should ease the tension.

Setting up a risk management system

At the Annual General Meeting, member institutions equally voted for the setting up of a risk-management and compliance system to ensure that the savings of members are safe.

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Source : https://www.businessworld.ie/news-from-ireland/Irish-credit-unions-to-set-up-centralised-mortgage-system–568161.html

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