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Credit Unions Offer Creative Home Loans
Large credit unions are offering average borrowers some of the more creative mortgage products these days when compared with the more standard fare of big banks.
And these innovations don’t necessarily fall outside the confines of the new regulatory criteria for “qualified,” or safe, mortgages, which provide lenders with greater legal protections. As member-owned, nonprofit institutions, credit unions tend to have a low tolerance for risk.
“They never got into the negative-amortization loans and any of those goofy teaser rates,” said Bob Dorsa, the president of the American Credit Union Mortgage Association in Las Vegas. “They are interested in what’s in the best interest of their members.”
But because credit unions typically keep a hefty portion of their loans in portfolio (rather than sell them on the secondary market), they have flexibility in tailoring mortgages to better meet consumer needs instead of the expectations of investors.
Pentagon Federal Credit Union of Alexandria, Va., is offering a new 15/15 adjustable rate mortgage, or ARM, to its 1.2 million members. Announced in February, the loan offers a slightly lower interest rate than a 30-year fixed-rate loan, and more stability than other ARMs. The rate doesn’t change for the first 15 years. Then, it adjusts once, setting the new rate for the final 15 years of the loan. More typically, ARMs adjust annually after an initial fixed period of 5, 7 or 10 years.
“We have many defense-related members who move several times during their career,” said Craig Olson, Pentagon’s senior vice president of mortgage operations. “This is an excellent opportunity for anybody who doesn’t think they’re going to be in the same house for 15 years.”
Eligibility is limited to purchases and refinances up to $750,000. The adjusted rate is capped at no more than 6 percent above the initial rate.
Redwood Credit Union, with 230,000 members in the Bay Area of California, offers another twist on the usual adjustable-rate loan. Its popular 5/5 ARM adjusts once after five years. The rate then remains fixed for another five years. “It appeals to those folks who are looking for that 10-year horizon,” said Cynthia Negri, the chief lending officer. “They know they’re going to stay in their home longer than seven or eight years, so they don’t want a 5/1. And this has a better rate than the 10/1.”
Pentagon also offers a 5/5 ARM, with an added rate-reset option. Choosing that option means an initial interest rate that is a quarter of a percent higher than the current 5/5 ARM market rate, Mr. Olson said. But it gives the borrower the power to decide when to reset the rate up to five times during the life of the loan (as long as it’s not within a year of closing).
Navy Federal, one of the country’s largest credit unions with more than 4.5 million members, is offering interest-only loans to qualified borrowers. Most lenders have dropped these loans, which include a set term during which the borrower only pays interest on the principal balance, because they aren’t considered qualified loans.
Borrowers approved for interest-only loans typically have higher incomes than Navy’s average borrower, and are qualified based on their ability to make the full principal and interest payment, said Richard Morris, the vice president of investor relations and equity lending.
A more popular portfolio product is the Homebuyer’s Choice program. Accounting for nearly 10 percent of Navy’s mortgage volume, the program offers 100 percent purchase financing. “We have a lot of young, first-time buyers, and this is great for someone who’s not eligible for a Veterans Administration loan,” said Katie Miller, the vice president of mortgage lending.
The State of Real Estate
Whether you’re renting, buying or selling, here’s a look at real estate trends.
American homeowners could see a significant drop in the cost of selling their homes after a real estate trade group agreed to a landmark deal that would eliminate the standard 6% sales commission.
A pricey housing market and higher interest rates have made it harder to afford a house, but so-called closing costs — for items like loan origination fees, discount points, appraisal and credit report fees — are also adding to the challenge.
As the prices for office space in urban centers tumble, cities whose municipal budgets rely on taxes associated with commercial real estate are starting to bear the brunt.
Homeowners are adding hidden doors and rooms to foil burglars, eke out extra storage space and prepare for Armageddon.
Charter schools are popping up in struggling malls as landlords look for alternative tenants and communities seek to increase educational opportunities.
As housing costs soar, Washington State wants to limit annual rent increases to 7%. The move is part of a wider trend to impose statewide rent caps.
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