The credit union reported that traditional mortgage loans in its market often have a requirement for a down payment of 10% of the loan value while loans insured by FHA require only a 3.5% down payment. In addition, the credit union pointed out that the 3.5% down payment can be given to the borrower from an immediate family member, a fianc? or close family friend.
Credit union executives said The Golden 1 had not deliberately declined to offer FHA-insured mortgages in the past but simply did not see much demand for the loans, which are a longtime favorite of first-time home buyers.
"We offered conventional conforming mortgages, of course, that we could sell to Fannie Mae," explained Donna Bland, chief financial officer for the credit union, "along with the so-called jumbo mortgages when the prices were high."
Since the jumbo loans could not be sold on the secondary market, Bland said the credit union would hold them on its books. She added that the few jumbo loan secondary market outlets usually wanted the credit union to sell the loan servicing as well as the loan itself, which the credit union did not want to do.
"Keeping the loan servicing with us was a very important part of the jumbo loans and also the FHA loans," explained Curtis Dair, senior vice president for lending at the credit union. "The loan servicing is the touch point with our members, and we want to keep control of that."
Bland and Dair recounted how the gradually changing real estate market and economic downturn made clear the importance of offering FHA mortgages. Over 40% of the mortgage loans made in Sacramento County in May of this year were FHA-insured loans, Bland reported.
"FHA mortgages have been traditionally seen as a vehicle for first-time home buyers," Bland said, "because of the lower amounts required for down payments. But given what has happened with the economy and the housing market, we are seeing members sometimes financing homes for the second or third time with the FHA insurance."
Bland and Dair stressed beginning a FHA-insured mortgage program was not simple. Financial institutions that want to start offering FHA loans to the public first have to work privately with the agency to develop mortgages for a few select borrowers. If these mortgage applications go well, Dair said, the financial institution can start advertising FHA-insured loans.
Bland reported as well that the demand for new mortgages has been slowly increasing, though it does not even come close to pre-downturn levels.
"Now we might be averaging $25 million a month," Dair said, "whereas early in 2008 we might have been doing twice that. But it's coming back slowly."