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<p>WARREN, Mich. – Cutting the monthly repayment rate on home equity loans by half a point from 1.5% to 1% may not sound like a big deal, but when the rate reduction can cut members’ payments by a third and the home equity loan product is combined with a Visa Platinum card, the result can be astounding. In fact, Metro Credit Union expects to boost the appeal of its Visa-home equity line-of-credit combination by doing just that. During the first six months of 2001, MCU ranked first in Michigan and third in the nation in home equity loans according to CUNA data, with .09 HELOCs per member. MCU CEO Kevin O’Connor says the program continues to be successful. He believes the key has been combining HELOC with a Visa Platinum card. “That’s really what drives the success of that program,” he declares. “Our HELOC is a Visa Platinum card. We don’t have any other HELOC program. We have a second mortgage program, but all home equities come under the Platinum card.” A member doesn’t necessarily have to qualify for Platinum status to get the card. “We really look at the equity in your home – people don’t walk away from the mortgage,” O’Connor says. He credits the Visa HELOC idea to a friend who is also a member and has a mortgage with MCU. One evening O’Connor was visiting the friend at his home. The friend pulled out his Visa statement and observed, “I wish your home equity statement looked like this. I could see the activity on my home equity, what’s available, and remittance.” “What if the Visa were a home equity loan?” O’Connor mused. “That would be great!,” the member responded. Back at his office O’Connor discussed the idea, then called Payment Systems for Credit Unions, the MCU processor. No problem, PSCU said. Another call went to MCU’s ad agency asking them to design the card. The credit union also reviewed operational aspects required to track insurance and other details that would need to be confirmed as with any other real estate loan. “Within I would guess 90 days after that conversation with my friend the card was launched,” O’Connor recalls. “We hit $10 million (in outstanding HELOCs) in about two years. We now have $16 million in home equity loans. Some of those loans aren’t Visa HELOCs but were grandfathered in. But it has been a phenomenally successful program.” What makes this so attractive to members? O’Connor cites a couple factors. For almost all members, interest is tax deductible. Members with substantial home equity are using the Visa HELOC to buy cars and get a tax break. Another factor is the variable interest rate, based on loan-to-value, with a floor of 7%. If you borrow up to 89%, the card is priced at prime rate. If the LTV is greater than 90%, the rate is prime plus 2′ There’s a $5,000 minimum draw, and the member needs to maintain that balance for two years. The member pays all costs, such as the title search and the appraisal fee if an appraisal is needed. However, the credit union can ordinarily use the tax assessment valuation to confirm the LTV is there. Although the average mortgage is paid off in seven years, the Visa/HELOC is based on a 20-year amortization, with 1% of the outstanding balance due each month. It was 1.5%. “We just changed it to 1 percent, cutting payments by a third, to make it even more attractive. People don’t necessarily always look at the rate. They look at the payment,” O’Connor says. So far, MCU has the playing field to itself. O’Connor says none of the local competing financial institutions offer a Visa/HELOC combination. In fact, when he recently attended the PSCU annual meeting and asked about Visa HELOCs, he learned only about five credit unions represented were offering them. If it sounds like a slam-dunk, O’Connor points out there are some points to keep in mind for example. Research and development is critical. You must know your membership, the local economy and real estate market conditions. Are housing prices rising in your area so home equity will grow? You’ll need to make certain taxes, insurance and escrow are maintained. MCU has a partnership with a title company that conducts the tax searches. If the prime rate goes up and mortgage rates stay low, it’s a harder sell. Education is important. Members, the board and staff need to understand the details. Even with all that in mind, “It’s not that complicated,” O’Connor stresses. “Just because it’s new and not everybody is doing it doesn’t mean it’s hard.” [email protected]</p>

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