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WEST PALM BEACH, Fla. – As if Fannie Mae hasn’t been in the media spotlight enough lately, now the housing Government Sponsored Enterprise is being called to the carpet once again. This time it’s for its 40-year mortgage Fannie Mae began piloting the middle of last year, but credit unions are lining up behind the company to defend the mortgage product. CBS Market Watch, the week of Jan. 10, awarded Fannie Mae’s 40-year mortgage- the so-called “credit union affordable mortgage”-its “Stupid Investment of the Week” moniker on the basis that the higher interest rate of the loan offsets the touted smaller monthly payments. “The latest version of the 40-year mortgage is such a bad idea that a pilot program has been dubbed “Stupid Investment of the Week” for offering more cons than pros – even for those who might not otherwise be able to afford a home,” CBS Market Watch stated. Even for those homeowners who do not stay in their home for the life of the 40-year mortgage this may not be the most suitable product for them, CBS Market Watch offered. Instead, it opined that an adjustable-rate mortgage may be more suitable. In Fannie Mae’s defense, Prime Alliance Solutions President Joe Brancucci, VP, chief lending officer BECU and chair of the CUNA Lending Council, says “the critics are missing the point. Their perspective is how much more the interest will cost the borrower. They claim that saving a $100 a month isn’t much, but our research shows there is a segment of the credit union membership for whom $100 a month makes an incredible difference. “The 40-year mortgage is another tool credit unions can offer members, but we’ve said before that it’s not for everyone,” Brancucci adds. “No one product is for everyone. If you spend time with members and you understand their needs, you give them the product that best suits them.” Brancucci stressed that Fannie Mae created its 40-year mortgage product in response to a push from the Fannie Mae Credit Union Advisory Council which he heads, adding that since Fannie Mae begin piloting the product with 21 credit unions last July, “we’ve seen a high level of satisfaction among the credit unions using the product.” To date, Prime Alliance has originated about $8 million in 40-year mortgages in the past five or six months. The 40-year mortgage applicant is typically young and a first-time homebuyer. “We haven’t seen any body who’s currently holding a 15- or 30-year mortgage applying to refinance for a 40-year mortgage,” says Brancucci. “They’re definitely first-time buyers.” According to Brad Crandall, president, C.U. Mortgage Services, a multi-owned CUSO that’s a subsidiary of CU Companies, New Brighton, Minn., about nine out of 624 closings the CUSO’s facilitated since last July have been for 40-year mortgages. Like Brancucci, Crandall stresses that the 40-year mortgage is not for everyone. We educate members on the choices available to them, he says. “There have been members who we’ve talked out of using the product,” he says. “They were initially interested in it because they thought the monthly payments would be lower than a 30-year amortization. So they filled out a mortgage application and we learned they were only planning on staying in the home three or four years before their job transfers them. In that situation, we tell them a 40-year loan isn’t right for them because they can get a lower rate on an ARM or a seven-year balloon mortgage.” Other members come in who because of easy access to credit, have overextended themselves, he adds. They’re less interested in the rate and just want to make the lowest monthly payment they can, knowing they can also make pre-payments whenever possible without paying penalties. Despite the attractiveness of the 40-year mortgage to some consumers, Crandall offered that “the 40-year mortgage alternative is not going to take over the 30-year commitment.” Crandall characterizes the member who chooses a 40-year loan as being “someone who won’t be able to sleep at night worrying about what will happen if I have an ARM and the time for the rate adjustment comes and I’m still in the home.” CU Companies President/CEO Don Anderson says that whenever a member applies for a mortgage through C.U. Mortgage Services, the company explains to them the pros and cons of each type of mortgage and tries to ascertain where the applicant is in their financial life – how many years of work do they have left, what is their age and retirement plans, what are their other financial obligations. “During the recent refi boom we had a lot of members applying for 15-year fixed-rate mortgages because of the low interest rate. Then reality set it and they realized the monthly payments were higher than what they were accustomed to. So they started to have cash problems. I pride myself on the financial counseling we give members, we try to educate members as opposed to merely selling them a loan. We tell them, let’s figure out a payment you’re comfortable you can afford, and then let’s structure a loan,” says Anderson. CBS Market Watch’s criticism of Fannie Mae’s 40-year mortgage hasn’t dulled CUs’ interest in the product. MyCUmortgage, a division of Wright-Patt CU’s wholly-owned CUSO, began offering the product to members last month. The rate on the product is about 0.25% about the 30-year rate. The credit union says “it’s an ideal product for those who are challenged by affordability issues and think homeownership is beyond their reach.” Tim Mislansky, VP, CUSO operations concurred with other credit union mortgage experts’ comments that the 40-year mortgage isn’t meant for everyone. “It’s like comparing a 15-year to a 30-year mortgage. Everyone know you’re financially better off with a 15-year loan because of the faster amortization, so you pay down the principle faster.” As for CBS Market Watch’s comments about the product, Mislansky said, “they took a very narrow look at it. You can make the same discussion about the 30-year mortgage compared to a 15-year product. It comes down to affordability.” “Anything new and challenging will always be criticized, but the critics of the 40-year mortgage are criticizing it in all the wrong places,” says Brancucci. “Even in the refi market, credit unions weren’t members first choice for mortgages. Credit unions were still able to do a good volume because they had the capacity in their operations. In the current emerging purchase market, credit unions have to have a full arsenal of innovative products to compete. As long as credit unions are honest with their members, they should offer them this mortgage product.” -

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