WEST PALM BEACH, Fla. - As if Fannie Mae hasn't been in themedia spotlight enough lately, now the housing Government SponsoredEnterprise is being called to the carpet once again. This time it'sfor its 40-year mortgage Fannie Mae began piloting the middle oflast year, but credit unions are lining up behind the company todefend the mortgage product. CBS Market Watch, the week of Jan. 10,awarded Fannie Mae's 40-year mortgage- the so-called "credit unionaffordable mortgage"-its "Stupid Investment of the Week" moniker onthe basis that the higher interest rate of the loan offsets thetouted smaller monthly payments. "The latest version of the 40-yearmortgage 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 stayin their home for the life of the 40-year mortgage this may not bethe most suitable product for them, CBS Market Watch offered.Instead, it opined that an adjustable-rate mortgage may be moresuitable. In Fannie Mae's defense, Prime Alliance SolutionsPresident Joe Brancucci, VP, chief lending officer BECU and chairof the CUNA Lending Council, says "the critics are missing thepoint. Their perspective is how much more the interest will costthe borrower. They claim that saving a $100 a month isn't much, butour research shows there is a segment of the credit unionmembership for whom $100 a month makes an incredible difference."The 40-year mortgage is another tool credit unions can offermembers, but we've said before that it's not for everyone,"Brancucci adds. "No one product is for everyone. If you spend timewith members and you understand their needs, you give them theproduct that best suits them." Brancucci stressed that Fannie Maecreated its 40-year mortgage product in response to a push from theFannie Mae Credit Union Advisory Council which he heads, addingthat since Fannie Mae begin piloting the product with 21 creditunions last July, "we've seen a high level of satisfaction amongthe credit unions using the product." To date, Prime Alliance hasoriginated about $8 million in 40-year mortgages in the past fiveor six months. The 40-year mortgage applicant is typically youngand a first-time homebuyer. "We haven't seen any body who'scurrently holding a 15- or 30-year mortgage applying to refinancefor a 40-year mortgage," says Brancucci. "They're definitelyfirst-time buyers." According to Brad Crandall, president, C.U.Mortgage Services, a multi-owned CUSO that's a subsidiary of CUCompanies, New Brighton, Minn., about nine out of 624 closings theCUSO's facilitated since last July have been for 40-year mortgages.Like Brancucci, Crandall stresses that the 40-year mortgage is notfor everyone. We educate members on the choices available to them,he says. "There have been members who we've talked out of using theproduct," he says. "They were initially interested in it becausethey thought the monthly payments would be lower than a 30-yearamortization. So they filled out a mortgage application and welearned they were only planning on staying in the home three orfour years before their job transfers them. In that situation, wetell them a 40-year loan isn't right for them because they can geta lower rate on an ARM or a seven-year balloon mortgage." Othermembers come in who because of easy access to credit, haveoverextended themselves, he adds. They're less interested in therate and just want to make the lowest monthly payment they can,knowing they can also make pre-payments whenever possible withoutpaying penalties. Despite the attractiveness of the 40-yearmortgage to some consumers, Crandall offered that "the 40-yearmortgage alternative is not going to take over the 30-yearcommitment." Crandall characterizes the member who chooses a40-year loan as being "someone who won't be able to sleep at nightworrying about what will happen if I have an ARM and the time forthe rate adjustment comes and I'm still in the home." CU CompaniesPresident/CEO Don Anderson says that whenever a member applies fora mortgage through C.U. Mortgage Services, the company explains tothem the pros and cons of each type of mortgage and tries toascertain where the applicant is in their financial life - how manyyears of work do they have left, what is their age and retirementplans, what are their other financial obligations. "During therecent refi boom we had a lot of members applying for 15-yearfixed-rate mortgages because of the low interest rate. Then realityset it and they realized the monthly payments were higher than whatthey were accustomed to. So they started to have cash problems. Ipride myself on the financial counseling we give members, we try toeducate members as opposed to merely selling them a loan. We tellthem, let's figure out a payment you're comfortable you can afford,and then let's structure a loan," says Anderson. CBS Market Watch'scriticism of Fannie Mae's 40-year mortgage hasn't dulled CUs'interest in the product. MyCUmortgage, a division of Wright-PattCU's wholly-owned CUSO, began offering the product to members lastmonth. The rate on the product is about 0.25% about the 30-yearrate. The credit union says "it's an ideal product for those whoare challenged by affordability issues and think homeownership isbeyond their reach." Tim Mislansky, VP, CUSO operations concurredwith other credit union mortgage experts' comments that the 40-yearmortgage isn't meant for everyone. "It's like comparing a 15-yearto a 30-year mortgage. Everyone know you're financially better offwith a 15-year loan because of the faster amortization, so you paydown the principle faster." As for CBS Market Watch's commentsabout the product, Mislansky said, "they took a very narrow look atit. You can make the same discussion about the 30-year mortgagecompared to a 15-year product. It comes down to affordability.""Anything new and challenging will always be criticized, but thecritics of the 40-year mortgage are criticizing it in all the wrongplaces," says Brancucci. "Even in the refi market, credit unionsweren't members first choice for mortgages. Credit unions werestill able to do a good volume because they had the capacity intheir operations. In the current emerging purchase market, creditunions have to have a full arsenal of innovative products tocompete. As long as credit unions are honest with their members,they should offer them this mortgage product." -

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