WASHINGTON – CUNA's Home Loan Payment Relief (HLPR) loans have succeeded in making low-cost mortgages available to more low-income borrowers. But because of the way the loans are currently structured they cannot be sold on the secondary market and have to be held in participating credit unions' portfolios, tying up CUs' liquidity. That may soon change. CUNA Senior Economist Steven Rick told Credit Union Times that he and CUNA Chief Economist Bill Hampel plan to meet with Freddie Mac representatives "in the next six weeks or so" to discuss what needs to be done to make the HLPR loans saleable on the secondary market. "Clearly according to the Freddie Mac charter, they can only purchase loans that meet certain stipulations," said Rick. The primary stipulation, explains Hampel, is that Freddie Mac's charter only allows it to buy loans with a less than an 80% loan-to-value ratio if the loan has private mortgage insurance or some other form of credit enhancement. "That's one of the biggest reasons why the HLPR loan is a 3/1 loan, it's designed to be a default for credit unions to hold in their portfolio and not have to sell on the secondary market. The ARM compensates for the interest rate risk," Hampel said. The HLPR loan is a three-year, adjustable-rate mortgage offered to qualifying borrowers at 1% below the national average for 3/1 ARMs. For example, for the week ending April 14 the national rate was 6 1/8% and the HLPR rate was 5 1/8% or less. Hampel noted that private mortgage insurance is "fairly expensive and can represent a significant increase in a borrower's monthly payment." Credit unions participating in HLPR are encouraged to reduce closing costs, private mortgage insurance costs or other related fees and costs. "If credit unions participating in HLPR are doing what they can to reduce borrowers' monthly payments, then charging them for private insurance negates that," said Hampel. He added that a lot of potential HLPR borrowers actually have an aversion to ARMs and prefer fixed-rate loans. "So it would be nice to find a way to offer them a fixed-rate loan, but then the credit union would want to find some way to sell the loan on the secondary market because of the interest rate risk," he said. According to Hampel, there are a couple options for HLPR CUs. First, a credit union could hold a loan for a while without private insurance and then in a few years buy some sort of group private mortgage insurance or credit enhancement. That way the CU could sell the loan on the secondary market. Another option is for a CU to charge a HLPR borrower for primary mortgage insurance from the start. "There's nothing in the HLPR program that says a lender can't do this," said Hampel. Either way, said Rick, if Freddie Mac buys HLPR adjustable-rate loans or fixed-rate loans, the objective for the housing Government Sponsored Enterprise is to be able to buy the loans so the money would go back to credit unions and increase their liquidity to make more loans. Rick said that would increase the appeal of the product to more credit unions. "Anything that contributes to increased liquidity enhances the attractiveness of the product to more credit unions and increases their willingness to invest in that type of product," said Rick. -

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