PEWAUKEE, Wis. -- The Wisconsin Credit Union League has now added its weight to the growing trend of countering foreclosures and predatory mortgages with the credit union common sense approach to real estate lending.
Alarmed at the news that the state had more than 7,697 foreclosures in 2007, a 21% increase from a year ago) Brett Thompson, president and CEO of the WCUL wants credit unions to be the "go-to" provider of fair and appropriate mortgage loans. He also expects that CUs will get more play in the arena, given the alarming mortgage news that's topic one in the mainstream press nowadays.
Thompson isn't happy to see consumers put into loans they cannot afford. "People at lower income levels or with less-than-perfect credit find that their borrowing options are limited by for-profit lenders and some end up turning to gimmicky, subprime mortgages," he said. And when the reality of zooming interest rates hits, "Their dream of owning a home quickly becomes a nightmare." So much for The American Dream, he added, wryly.
With new guidance on subprime lending released on June 29, (CU Times, July 11) Thompson is hopeful that state laws will follow suit, as was recommended by the issuing agencies. Because subprime lenders were not compelled by law to fully disclose the downside of low, early rates, consumers with good credit were not directed to traditional providers like credit unions and community banks.
"With so many choices in the marketplace, it's important for consumers to understand the role not-for-profit lenders like credit unions can play in helping them obtain an affordable mortgage," said Thompson. "Credit unions are going to look at what's in their members' best interest and structure home loans accordingly."
Thompson noted that Wisconsin CUs have been using the Home Loan Payment Relief (HLPR) Program, which makes below-market-rate mortgages available to first-time homebuyers with household incomes at or below the median in their market. It's a three-year ARM for qualifying borrowers, at one point below the national average with a down payment of 3% that allows the use of gifts or grants.
In three years, CUs adjust the rate annually, market and cap adjustments at 1% a year and 5% points over the life of the loan. He said the built-in caps prevent members from getting in over their heads. Wisconsin credit unions started using these programs as part of the REAL Solutions initiative, which is crafted to extend CU services to people in need, without regard to how much profit the CU can make on the loan. It's not charity, either, Thompson said. "Credit unions can't produce more affordable housing, but we can reduce monthly payments, enabling more borrowers to qualify." But keeping people in their home is just as important as making the loan that puts them there,he said.