The popularity of a 100% financing mortgage loan could force the$60.5 billion Navy Federal Credit Union into a fair lending exam,according to NCUA guidance.

Navy Federal's HomeBuyers Choice mortgage is a no-down-payment loan thatcarries an interest rate of about 5%, according to Michele Townes,a senior public relations specialist with Navy Federal.

The loans are extremely popular with members. Navy Federalbooked 11,700 of them in 2013, according to data the credit unionfiled under the Home Mortgage Disclosure Act.

However, the 5% APR is more than 1.5% above the average primeoffering rate, which is how federal housing regulations definewhether a loan is considered a “higher priced” mortgage.

In fact, Navy Federal stands out in the 2013 HMDA data as thelender that, by far, made the greatest number of higher pricedmortgages in the country last year, twice that of its nearestcompetitor in the category, the Birmingham, Ala.-based RegionsBank.

According to HMDA data released by the Federal FinancialInstitutions Examination Council, in terms of loan volume, NavyFederal was among the top 25 mortgage lending institutions in thecountry.

Townes said the credit union did not think the HMDA data wouldtrigger a fair housing exam because the loans are open to all itsmembers, and because the product's lack of mortgage insurance anddown payment meant the credit union required the higher interestrates to cover increased risks. One defense lenders have againstsuspected discrimination claims is a legitimate business reason forcharging a higher rate.

But in March 2013, a letter to federally chartered credit unions from the NCUAindicated that having mortgage numbers that are sharply differentfrom other lenders, so called statistical outliers, is preciselythe sort of thing that can trigger a fair lending exam.

“(The) NCUA will review the federal credit union's annual HMDAreport,” the agency said in its letter. “If a review of the HMDAreport indicates that the federal credit union's lending practicesfall outside the normal range for pricing, denials, withdrawals orlending terms when compared to other financial institutions, thefederal credit union is considered a HMDA outlier. Federal creditunions that are HMDA outliers and demonstrate the potential forhigher fair lending risk are subject to a fair lending exam inaccordance with the FFIEC exam procedures.”

In addition to no required downpayment or mortgage insurance,Navy's HomeBuyers Choice loans can carry either fixed or adjustableinterest rates. Sellers can also contribute up to 6% of the buyer'sclosing costs and Navy Federal will make the loans on properties upto $1 million, the credit union's website said.

The nation's largest credit union, headquartered in Vienna, Va.,began offering the Homebuyers Choice loans in early 2013 afterhaving offered no-money-down housing loans for some time underdifferent names.