SANTA ANA, Calif. -- If the housing prices are dipping significantly someone forgot to notify Southern California.
With the average price of a single-family home in Southern California exceeding $500,000, Orange County Teachers Federal Credit Union recognized that many residents were finding it difficult to make the jump from renter to homeowner. So, in December of 2005, it rolled out the Home Loan Payment Relief program, created by CUNA, and designed to provide members with modest incomes the opportunity to qualify for lower cost home loans. Orange County Teachers was one of the very first CUs to participate in the HLPR program.
The HLPR loan is a three-year, adjustable-rate mortgage that is offered to qualified buyers at 1% below the national average for these loans. After three years, the rate adjusts annually to market rates, with rate adjustments limited to 1% per year and 5% over the life of the loan. There is a zero-down payment option, with no private mortgage insurance required. The maximum loan amount is $500,000.
OCTFCU Mortgage Co., LLC, a wholly owned subsidiary of the $6 billion OCTFCU, began offering the HLPR program and 126 mortgages have been issued in the approximately one year since its inception. Loan volumes have totaled more than $43 million, and the average loan amount has been $360,000.
"We designed this so that we were able to take a little more risk because of our members and where they're located--real estate prices in Southern California are so high," explained Steve Renock, executive vice president of financial services at OCTFCU. "The FICO scores of the people who we have done these loans for have been fairly high. Although we didn't make a requirement, our average is 736."
One requirement was that applicants be of "modest income." With its HLPR program the FCU applies the term by using HUD statistics defined as 120% of median household income for a geographic area. It has broken that number down by the counties that it serves, so income figures are going to vary throughout its service area, which includes Orange, Los Angeles, San Diego and seven other Southern California counties.
"We've advertised it and educated and informed our members that we have this product," Renock said. "The fact that we're only doing 126 loans is indicative of the problem that we have in Southern California with high real estate prices. If we were to do another 125 or so for 2007, I'd be thrilled. We're not going to be overwhelmed with the numbers simply because it's so expensive to get into real estate."
The modest number of loans is not indicative of the actual number of qualified applicants. The FCU has had to turn away many more people that it would have liked to have helped because they could not find affordable real estate even with HLPR assistance, Renock said. "They're people that are well qualified to buy property because of their credit history, they just can't find something that fits within their means," he added. Despite the high market and a program with no down payment and no PMI required, Renock said that default is not a big concern. With the high FICO scores, a membership that is not as transient and a solid economy in the area, Renock doesn't expect many default problems.
"There's always going to be some concern but people need a place to live," Renock said. "We're just trying to make those places a little more affordable." --firstname.lastname@example.org