o Mortgage seminars and one-on-one counseling are important.
o Appraisals, debt ratio may be critical to approval.
o Michigan CUs have new tool to avoid foreclosures.'
Should I refinance? Will I qualify for a mortgage? Am I paying the right price for this house? Will mortgage rates drop even more?
As the nation claws its way up from a severe recession, the decision to purchase a home has potential buyers struggling to make the right decisions. Perhaps more than ever, credit unions are trying to help with seminars and one-on-one counseling.
National Institutes of Health Federal Credit Union in Rockville, Md., serves the biomedical and health care industries, which have been much less shaken by the recession than many other economic sectors.
"This area in general is doing very, very well," CEO Juli Anne Callis said. Although there are some small spots of overbuilding, "there is optimism and solid property values." Callis said members are mostly asking whether now is the time buy and whether she thinks housing prices will drop more.
The credit union recently held a two-hour mortgage seminar at a local library, a location more accessible than the tightly secured National Institutes of Health campus. During the session, the credit union explained key points such as the effect FICO has on rates, the function of points and a down payment, and the risks of variable rates versus fixed rates.
After the session, people clamored to submit mortgage applications.
However, first-time buyers are cautious, Callis said. The credit union's membership basically consists of highly educated individuals, but those with Ph.D.s and M.D.s just beginning their careers are weighing how long they will remain in their current job. If they expect to move on within perhaps five years, they figure they may be better off renting.
On the other hand, the area has a lot of residents from other countries who are here on H1 visas allowing them to work and buy homes in the United States. They may be multi-generational families, often from Asia, who are liquidating assets overseas and can make a 50% or greater down payment on a mortgage.
"I can't say that we reflect the standard of what America is experiencing," Callis said. "But I think in different areas--such as Seattle [and] Boston--with strong biomedical presence you're going to see some hot spots in the economy that are extremely positive."
As for mortgage lending standards, "I believe we've righted the boat. Things are going back to the way they were in the 1980s and 1990s. A clean mortgage is a clean mortgage, and you need the same attributes as in the past."
Callis expects the robust mortgage pace NIHFCU has experienced so far this year to continue.
"I'm a cautiously optimistic person ordinarily, but in this case I'm extremely optimistic," she said. She added that another big trend right now is boomers looking at buying investment property, a second home that may end up being their primary home in retirement.
As credit unions strive to educate members about making wise financial decisions, they may get some help. Callis said the state of Maryland has just announced a financial literacy program for students that will run from elementary school through high school. That should mean a future generation of savvy borrowers, including homebuyers.
Jeanie Olson, vice president/mortgage services at Mountain America Credit Union, said she is seeing some anxiety among homebuyers in the area the credit union serves, which includes Utah, Nevada, Arizona and New Mexico.
"We definitely have pockets where home values are struggling," she said. "Part of the reason they are struggling is they were caught up in a pattern of investors sometimes purchasing entire subdivisions. Now they're abandoned, foreclosed, up for sale.
"Members are not sure they want to take on a mortgage if values continue to decline. I think the tax credit helped overcome that anxiety a little bit, but now that that's gone we've seen another dip in purchases."
Last year MACU approved $500 million in mortgage loans, the largest volume ever. Much of that was refinancing. So far this year that pace has been cut in half, even though rates are still low.
It is a little more difficult to qualify for a mortgage than it was a couple years ago, Olson said, so the credit union is providing more one-on-one counseling. MACU may recommend that the member return after trimming his or her credit card debt or building his or her savings reserves.
The down payment is typically not as much of a problem as having the money on hand to meet at least two months' mortgage payments. Another issue is credit--not only at the time of the application but all the way through the process. MACU now pulls credit reports on a certain percentage of applicants just prior to closing. Any change may mean "back to the drawing board," Olson explained.
"We are coaching people very heavily not to have any credit activity until the mortgage is done. People are getting caught up in that. We're dealing with one member right now whose debt ratio was very much on the fence, and prior to closing on the mortgage she purchased a new car. We counsel them, but sometimes they don't hear it."
Falling values can also scuttle a mortgage when the appraisal doesn't match the would-be buyer's expectation.
"We have great members, and generally when they get ready to buy a home they will qualify," Olson said. "But when they pick out their dream home, and the property appraisal comes in and it isn't high enough or the comps aren't good, it's hard on the member relationship.
"We explain, 'This isn't about you. You are really great members, have great credit, your debt ratio is fine, you have your down payment. But this property is giving us issues.' We don't want them to feel their credit union isn't helping them. It's very hard."
What about members already in trouble with their mortgage? In Michigan there's a new tool available to help. The U.S. Department of Treasury and the Department of Housing and Urban Development have approved a plan that will provide $154.5 million beginning July 12 to assist 17,000 Michigan households in avoiding foreclosure.
Michigan, which has served as a poster child for the impact of the recession, will be the first of five states to receive the funds. Credit unions are being asked to participate and train staff to answer member questions before the formal launch July 12.
William McLeod, mortgage manager at Michigan State University Federal Credit Union, told Credit Union Times MSUFCU will be involved through its adjustments department.
"I think this is a fantastic tool to help keep members in their homes," McLeod said.
When he conducted a seminar for would-be homebuyers on June 29, he fielded a lot of questions about the tightening of underwriting for condominium purchases and received many requests for pointers on buying foreclosed homes. McLeod cautioned that, unfortunately, what appears to be a good deal might not actually be a wise purchase, "for example, the indoor swimming pool that is not supposed to be there but is due to a flooded basement."
Some attendees also said they were having trouble selling a current home. McLeod pointed out that if a member sells a home for perhaps $40,000 less than he expected but buys a new one for $40,000 less than he would have before the economic downturn, it pretty well balances out.
MSUFCU is looking closely at revolving debt and using what McLeod terms a "common sense approach" in analyzing a member's financial situation.