Just a few weeks into his new job as vice president of mortgagelending for the $1.3 billion Community First Credit Union, GlenOgden was bothered that his team was turning away new business.Members were calling about the first-time homebuyer federal taxcredit, asking if they could use it as a down payment.

But, federal law prohibits the practice, and the Appleton,Wis.-based credit union didn't have a suitable product to fill thegap.

“We needed a program that would allow them to get into the homewith a 5% down payment that we lent them and allow them to pay offthat amount with the tax credit once they received it,” hesaid.

Creating a loan to finance the 5% down payment at 0% interestwas easy enough. In Appleton, located in east central Wisconsinabout 50 miles south of Green Bay, starter homes range from $60,000to $120,000. So, the $8,000 credit would be more than enough tocover the down payment. If a borrower didn't use his or her taxreturn to pay off the amount, the loan could roll into a secondmortgage with standard terms and payments.

It looked like all systems were go, except for one major hurdle:mortgage insurance. Ogden couldn't find one single mortgageinsurance company willing to cover the product. In this day andage, 100% financed mortgages are considered too risky, especiallyfor first-time homebuyers.

Other executives may have shrugged their shoulders, admitteddefeat and turned their attention to the next project. But Ogdendidn't give up.

Instead, he investigated self-insurance.

“After all, what is insurance?” he said. “It's paying a premiumto hedge a risk. So, I thought, what if I add a premium to theinterest rate and hold it on the books?”

As a basic example, Odgen said he would add 50 basis points tothe interest rate, and set it aside as a first-loss category in theevent the credit union does experience a loss.

“Not in a true reserve account, but noted,” he added.

Community First also charged a $500 origination fee, which itdoesn't typically charge members. Those funds were earmarked asreserves to guard against losses.

“Basically, we set aside the buffer in our own records, itwasn't technically on the books,” he said. “We are making a higheryield on these loans, so if we do take a loss, it comes fromthere.”

Since March 2008, Community First has funded nearly 70 mortgagesfor $7 million, and not one has gone delinquent.

To qualify, members were required to provide three years of taxreturns to prove no homeownership. And mortgage loan officers usedcommon sense to vet borrowers.

“When we got applications in the door from 20-somethings thathad 1040EZ forms, we knew these were the first time homebuyers wewanted,” he said.

Even after the April 15 income tax return deadline, CommunityFirst continued to promote “Stimulus Mortgages,” advising membersto file amended 2008 tax returns through Nov. 30, 2009, whichallowed them to receive the credit retroactively.

Retroactive tax returns not only ensured the loan would berepaid quickly, but members would also receive the full $8,000credit because they had already settled up with the IRS for2008.

Mortgages that closed before Nov. 30, 2008, have until April 15,2009, to get the no-interest deal. Those who have closed since thenhave until Oct. 1, 2010, to pay in full before the loan coverts toa second mortgage.

Ogden said his team will even let the due date slide a littlebit if the IRS delays the process.

“These are great members who have paid on time, and we've formedsome great new relationships, so we're not looking to come downheavy handed,” he said.

The rest of the loan is a five-year adjustable-rate mortgage,which Ogden said wasn't a hard sale, considering the bad pressadjustable rate products have received since the bubble burst.

“We knew they would be concerned about ARMs and bad press, sopart of our ad campaign was to stress that this is a good, solidand safe conforming product,” he said.

After one year, borrowers may refinance at appraised value,which has rising slightly in the Appleton area. Only one memberrefused the program because of the adjustable rate and that wasbecause his father was dead set against it, he said. Many Gen-Yborrowers brought their parents along to consult during the loanprocess.

Marketing was brought into the loop once the program was set.Community First's in-house marketing team created sales materialsfor members and real estate agents and scripting for staff.

Every real estate agent in the state of Wisconsin receivedflyers, and local agents were gifted chocolate houses with theFirst Community logo and were given the opportunity to draw housekeys from a bag to claim promotional prizes. One real estate agenteven forwarded a promotional e-mail to his state Realtors office,which in turn broadcast the promotion to all members statewide.

“As a result of our efforts, we made some great inroads intoreal estate offices,” Ogden said. “Some have their own mortgagebrokerage firms, and even they let us in.”

The program has been so successful, those same mortgageinsurers, who, last year, wouldn't touch the program, are nowexpressing an interest in covering it.

Peer pressure could have also played a role in the mortgageinsurers' changes of heart. A video profiling Seth and LindseyGregory, Community First members who took advantage of StimulusMortgage, was featured at several credit union industry events lastyear. Nearly every credit union executive who attended anorganizational meeting last year knows the story of the Gregory's,a young couple who had saved up $15,000 for a down payment but hadinstead used the funds to adopt their son.

The video was created in-house by Community First's marketingdepartment, including a contract employee based in Chicago whoproduces the credit union's TV and radio ads.

“There's good and bad associated with the government stimulusmoney, and anytime we can show the good work we're doing forpeople, not just here at Community First, but credit unions andgovernment programs, well, that benefits everybody,” Ogdensaid.

This year's Governmental Affairs Conference will be a busy onefor Ogden and Community First. In addition to nabbing the CUTimes Trailblazer Awards in lending and community service, theGregory's video also won the National Credit Union Foundation'sREAL Member Stories Video Conference and will be featured duringthe Monday night Herb Wegner Memorial Awards Dinner.

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