Mortgages: Variety of Products and Approaches to Help Borrowers
Greater financial education, a greater variety of loan products and different lending strategies have all been techniques credit unions have begun to use to help borrowers meet more stringent housing finance requirements, according to executives from credit unions and mortgage CUSOs.
It has become something of an axiom in the current housing finance market that mortgage loan money has become more available and at lower interest rates but simultaneously more difficult to obtain as many consumers have seen their credit positions slide as a result of the economic slowdown. Nonetheless, credit unions should still employ all the tools they have to help their members into homes, industry experts said.
It's no great secret that mortgage requirements are tighter and money is harder for borrowers to get, said Bob Dorsa, executive director of the American Credit Union Mortgage Association, the credit union housing finance trade group. What credit unions have to do is to keep working to find ways to help their members qualify for the loans they need.
One credit union that is doing that is the 162,000-member $1.41 million UW credit union headquartered in Madison, Wis. Two mortgage executives with the CU, which is the largest housing lender in the greater Madison metropolitan area, said the CU has not seen borrower quality decline but added that it has become more important to have a wide variety of products to offer to help borrowers overcome their different qualification challenges.
Mike Long, chief credit officer at UWCU, and Julio Rios, director of mortgage lending, said the CU was on track to book roughly $100 million in purchase money mortgage loans and between $260 million and $300 million in refinance loans this year and emphasized the impact a wide product line can have.
“For example, if a borrower might not qualify for a conventional mortgage with mortgage insurance, he or she might qualify for an FHA-insured mortgage that is a little more lenient on credit scores and down payments,” Long said.“ Having that option, the FHA option can mean the difference in being able to get the loan or not,” he added.
FHA loans as well can be more easily tweaked or adjusted to obtain a qualification. A down payment gift, something that is allowed in both an FHA-insured loan and a conventional loan is allowed under a broader range of circumstances in the FHA scenario and that could help make the difference, Rios added.
Long added that UWCU had also seen good results in helping borrowers prepare for the housing finance process so there was less chance of them not being able to qualify. The CU did this by offering seminars about credit and the housing finance process, helping members understand how credit scores work and what they could do to make their credit scores stronger before applying for a mortgage loan. In many cases, they needed to do less than they imagined, Rios and Long explained.
“I think, in general, consumers are harder on themselves than we are,” Rios said. “Sure, they might have a ding on the credit from years ago and imagine that will prevent them from qualification, but it’s often less important than they think, and we can help them deal with it.”
Long agreed, adding that the CU often urged potential borrowers to come in and talk to a loan officer before they decided whether or not they would be able to obtain a mortgage loan. “We always say come and talk to us, and we can find out where you really are,” Long said. “Maybe you might be able to qualify for a mortgage loan in a couple of months, or maybe you might be able to qualify right now.”
Linda Clampitt, senior vice president with CU Members Mortgage, a mortgage provider with more than a 1,000 credit union clients, agreed with much of what Rios and Long had said, but added additional observations about why FHA-insured loans had become such a large part of the U.S. housing finance market.
“A lot of it has to do with the change in credit scores,” she said. “If you are below a 720 on a conventional loan, you might not be able to get one or, if you do, you are going to start to pay an interest penalty for having a lower score. FHA isn't going to do that,” she said.
Clampitt also observed that one strategy that is always open to credit unions is to offer a loan that is destined for its own portfolio and not the secondary market. This can give the CU some leeway to account for some situations, such as a previous job loss, illness or divorce that would preclude the borrower from getting a conforming mortgage loans. But this also has become more difficult as both Fannie Mae and Freddie Mac have begun to ask for data on so-called “seasoned loans” be entirely rechecked or represented if that loan is going to be sold on the secondary market after being held for a time.
“It used to be you could take one of these loans and hold it to collect two or three years of payment history and then sell them,” she said, even if they had not started out as conforming loans. But now a credit union that wanted to do that would have to check all the information in the file and hope that the borrower's credit score had not changed or that there has been job loss or other mishap.
John Reed, president of CU Promise Mortgage, a housing finance CUSO in Maine, said his CUSO had found that sort of portfolio lending helpful. “We have created a loan called the CU Promise loan that will go up to 95% that must have private mortgage insurance,” said Reed. “But we do up to 90% and do not require PMI, which helps the borrower because they do not have to purchase the PMI. It’s been a huge success since we created the program about 18 months ago. All loans under this program are not sold to the agencies but are put in the credit unions portfolio. All loans are actually participated among 16 credit unions.”