Alliance Funding focuses on CUs for subprime lending

Orangeburg, N.Y. - Alliance Funding, which has been providing banks and other financial service institutions with a range of subprime mortgage lending products for their customers since 1985, has recently added credit unions to its list of partners. According to Kathy Lipps, assistant vice president, director of affinity relationships, Alliance saw the need for credit unions to offer a wider range of mortgage products to members. A primary focus in the Alliance/credit union relationship is to educate staff and administrators that it is better to provide mortgage loans to members in the fallout borrower category, those with less-than-perfect credit, than to turn people away. "Credit unions may question the subprime rates offered which are higher than the standard secondary market pricing, but they don't realize that by saying `no' to a member, that person is still going to try and get a loan someplace else. They may go down the street to a local broker who may be unscrupulous and charge even more for a loan. To such brokers, these are just one-time transactions, so they want to make as much money as possible," said Lipps. "Saying no to a member can be detrimental to the credit union/member relationship," Lipps explained. "If the credit union were to help educate the member and say, `Because of your situation, this is why you have to take out this type of loan,' it can also tell the member that if his or her credit record is kept clean for up to two-to-three years, it can help refinance that person into a better product." To be labeled a fallout borrower, or to be a borrower with less-than-perfect credit, is usually a point of embarrassment or humiliation. Lipps said that each person's situation is different, but the subprime borrower can be, for example, a single parent with credit concerns, a businessperson with a recent bankruptcy, or a self-employed person who is unable to verify income. The people in this category, based on secondary market guidelines, do not fit into the "perfect box" of the secondary market set by conventional lenders such as Freddie Mac and Fannie Mae. Alliance offers a broad range of mortgage products. Some highlights of its A through D loan programs (from $10,000 to $1 million) include: 90% LTV (loan-to-value), first and second mortgages; 85% LTV, no income verification first and second mortgages; no PMI (primary mortgage insurance), no 4506 or prepays; no asset verification or bank statements; no credit scoring; no reserves or escrow; and no limit on cash-out. "As far as amortization-type of products, we offer 15, 30 and 15/30 balloon mortgages and two-year breather and three-year adjustable mortgages," said Lipps. The types of properties Alliance will fund include: single family, one- to four-unit homes; low-rise and high rise condominiums; and single- and double-wide manufactured housing. "It's pretty much everything that is out there," said Lipps. In partnering with Alliance Funding, credit unions have the opportunity to earn fee income through a broker or correspondent lender relationship. As a broker, the credit union originates and processes the loan, but the loan would close under the Alliance name and with Alliance funds. The credit union sets up its own type of fee structure and collects points from the member at closing. As a correspondent, the credit union closes the loan in its name and with its funds. It can earn additional income through premium pricing. ("We don't see that happen to often," said Lipps as an aside.) The loan is then delivered to Alliance. If Alliance buys it at a higher rate than the established pricing, the credit union would earn points under that, plus what it would collect from the member at closing. Currently, six credit unions are providing subprime mortgage products with Alliance. Some of them include: Mid-Hudson Valley FCU, New York; CTCE-FCU, Pennsylvania; and Southern Utah Credit Union. Currently, there is an agreement pending with the board of American Heritage FCU, Pennsylvania. Alliance's total loan portfolio, including banks and credit unions, is $4.5 billion. Alliance's relationship with institutions such as J.P Morgan and Merrill Lynch has helped it securitize loans. It has also been securitizing loans since 1990 through FGIC (Financial Guarantee Insurance Company). Between all credit unions and banks, Lipps said the entire subprime market is valued as $10 billion. The company is not only forging relationships with banks and credit unions. According to Lipps, Alliance is establishing relationships with credit union service providers and CUSOs (Credit Union Service Organizations) which can offer mortgage and insurance-type products. One example of an outside relationship is the one Alliance has created with SWBC Mortgage, a company owned by South West Business Corp, San Antonio, Texas, a provider of insurance products to credit unions. "SWBC Mortgage processes quite a few loans to credit unions," said Lipps. "They say they can offer loans all across the board. When they need a subprime product, they come to us." Alliance Funding is a division of Illinois-based Superior Bank, FSB, which has over a billion dollars in assets. -Birritteri@hotmail.com