July 23rd, 2011 4:02 PM by Lehel S.
CREDIT unions, long a source for car loans and home equity lines of credit, have become a factor in first-mortgage lending, too.
While their mortgage rates aren’t notably below the competition, some credit unions are aggressively pushing loans they say have lower fees or more flexible terms. In some cases, they have loose membership rules, making these loans available not just to people working with a particular company or labor union.
“The credit unions have emerged as fairly aggressive; mostly that’s because they’ve decided it’s a good use of their assets,” said Guy Cecala, the publisher of the trade newsletter Inside Mortgage Finance. That is, rates paid to depositors remain low, and lending those deposits to home buyers remains profitable.
“We look at first-mortgage lending as an opportunity to help our members achieve the American dream of owning their own home,” said Robert Nemeroff, a spokesman forMelrose Credit Union in Queens, which is open to all. “However, we maintain prudent lending policies that by nature maintain a sound mortgage portfolio for the credit union and create a healthy borrowing situation for the member.
“A byproduct of this philosophy,” Mr. Nemeroff added, “is the ability to offer attractive rates, thus attracting new members.” In particular, he said, lower upfront fees can reduce borrowing costs.
It’s all part of the continuing fallout from the credit crisis. From the mid-1990s until the mid-2000s, credit unions accounted for just 2 percent of the first-mortgage market, according to Bill Hampel, the chief economist at the Credit Union National Association, a trade group. But in 2008-09, that rose to 4.5 percent.
For the most part, credit unions didn’t make subprime loans, Mr. Hampel said. So when others were crumpling under those loans, they kept on lending. (The National Credit Union Administration, the agency that regulates federal credit unions, last year bailed out the institutions called wholesale credit unions because of their money-losing subprimeinvestments. These didn’t make loans to individual customers.)
And when the financial crisis halted Wall Street mortgage securitization — the system in which investment banks sliced and diced loans into securities — credit unions weren’t as affected as others. They held the loans in their own portfolios rather than sell them, and had been doing so for years. For instance, at Melrose, Mr. Nemeroff said, “because part of our policy is to maintain a solid financial relationship with our members, we retain the majority of our portfolio.”
In New York in the last three to four years, there has been about a 15 percent increase in loans to home buyers, especially first-timers, said Richard Maxstadt, a senior vice president at the CUC Mortgage Corporation, established by the Credit Union Association of New York to service mortgages. CUC works with about 150 credit unions, most in New York state.
While Mr. Maxstadt said most of the loans he handles are “plain vanilla 30-year fixed-rate mortgages,” credit unions also offer loans tailored to market niches.
For instance, Pentagon Federal Credit Union, one of the nation’s largest, focuses on 5-5 adjustable rate loans. The interest, currently 3.25 percent, remains fixed for five years; it then adjusts by no more than two percentage points and is fixed for five more years. The credit union’s largely military membership tends to move every three to five years, rather than the national average of every seven, said James Schenck, an executive vice president. “An ARM if done correctly and done conservatively can benefit the consumer,” he said.
While the credit union’s core membership is military, it is open to others through affiliation programs. Real estate loans account for about 70 percent of Pentagon Federal’s $13 billion portfolio, according to regulatory reports. About 80 percent are ARMs, Mr. Schenck said. Mortgage lending has risen every year since 2007, he said, and is still growing.
This article has been revised to reflect the following correction:
Correction: July 17, 2011
The Mortgages column last Sunday, about credit unions lending to home buyers, misstated the surname of a senior vice president at the CUC Mortgage Corporation. He is Richard Maxstadt, not Markstadt.