Attractive mortgage terms draw first-time home buyers to credit unions

By Kenneth R. Harney April 17 at 7:45 AM

Want to buy your first home with little or nothing down and maybe get a refund on part of your realty agent’s commission?

Here’s one way: Consider joining a credit union that is aggressively growing its mortgage business. Credit unions have been expanding their presence in housing – more than quadrupling their share of total mortgage market volume in the past nine years, according to the National Association of Federal Credit Unions – by offering deals you can’t find at most banks.

Case in point: Navy Federal, the country’s largest credit union with $64 billion in assets, closed more than $1 billion in home purchase loans in March alone. That’s big. But what’s really extraordinary: Fifty-nine percent of the loans went to first-time buyers, and two-thirds of those first-timers were from a demographic slice that has been missing in action for years: borrowers ages 18 to 34. The historical norm for first-time-buyer participation in the homepurchasing market is around 40 percent, but it is just 28 percent to 29 percent now, according to the National Association of Realtors.

So how is Navy Federal pulling in hordes of young first-timers? By offering loans that address their needs: zero down payments, no private mortgage insurance premiums, plus, for those who qualify, the standard menu from the Federal Housing Administration (3.5 percent minimum down) and the Department of Veterans Affairs (zero down). Navy Federal also is tapping into a massive membership base of 5 million members worldwide and adding young new members quickly:It’s open to all branches of the armed services, active and retired, civilian employees, contractors and a wide range of relatives. Even “cohabiting partners” are eligible.

Navy Federal’s first-time-buyer focus is hardly unique. Other credit unions are running programs with tempting terms. North Carolina’s State Employees’ Credit Union offers qualified members up to 100 percent financing on mortgages as large as $400,000 with no private mortgage insurance premium payments. The interest rate as of mid-April: 4.25 percent on a 30-year term that has a rate adjustment after five years. For buyers who need help on closing costs, the program can lend them an additional $2,000, pushing the loan-to-value ratio beyond 100 percent.

NASA Federal Credit Union, open not only to NASA-related employees but also to members of 900 “partner” companies and associations, offers zero-down mortgages up to $650,000 with no private mortgage insurance plus a $1,000 closing-costs “lender credit” if the purchase doesn’t go to settlement by the contract date.

Still other credit unions help buyers with their expenses by refunding portions of real estate agents’ commissions. The Boeing Employees’ Credit Union, which is open to all residents and workers in the state of Washington – not just Boeing employees – gives purchasers the option of receiving a 20 percent cash refund of their real estate agent’s commission plus a $250 credit toward mortgage closing costs.

But here’s a key question: Are credit unions that offer such come-ons increasing their risk of defaults and losses? Counterintuitive though it may seem, credit union home-purchase programs generally have minuscule delinquency and default rates.

Katie Miller, vice president for mortgages at Navy Federal, told me its serious delinquency rate as of March on its entire portfolio was 0.57 percent. Stacie Walker, senior vice president for loan origination at North Carolina’s State Employees’ Credit Union, said that its group of zero-down-payment, first-time-buyer loans “actually performs better” than the entire mortgage portfolio, though she did not have specific figures on hand.

“We know our members,” Miller said, and Navy Federal has been following “ability to repay” underwriting guidelines for years, well in advance of congressional mandates for all lenders to do so after the mortgage crisis of the last decade.

Credit unions’ rapid growth – they now have about 100 million members – hasn’t gone unnoticed by banks and mortgage companies that compete against them. Robert Davis, executive vice president for mortgage markets at the American Bankers Association, says large credit unions get an unfair break: They essentially function like banks, but they have lower costs because as not-for-profit, member-owned institutions, they are exempt from federal taxation.

But let’s be frank:If you’re a first-time buyer, tax policy issues probably don’t concern you. You just want the lowest- cost option. Not all credit unions offer attractive loans, but many do. To check out credit union membership possibilities in your area, go to www.culookup.com.

Window is rapidly closing to get hassle-free reverse mortgage

By Kenneth R. Harney April 9 at 12-00 PM

Interested in a reverse mortgage without a lot of hassles? Better get your application in fast. As of April 27, the federal government is imposing a series of extensive “financial assessment” tests that will make applying for a reverse mortgage tougher – much like applying for a standard home mortgage.

Reverse mortgages always have been different- They’re available only to seniors 62 and older whose homes have equity that they want to convert into cash. There are no repayments required until the borrower sells the house, moves out or dies. Loan recipients’ main responsibilities are to keep current on local property taxes, pay hazard insurance premiums and keep the place in reasonable condition.

The Federal Housing Administration has for three decades run the country’s dominant insured reverse mortgage program, and the agency has been relatively easygoing with respect to underwriting. If you qualified on age and equity, you’ve pretty much had a good shot at getting a loan.

[FHA orders stiffer underwriting standards for reverse mortgages]

But during the years of the recession and mortgage bust, thousands of borrowers fell into default because they didn’t pay their required property taxes and hazard insurance premiums. On top of that, real estate values plunged, producing huge losses on defaulted and foreclosed properties for the FHA. The losses got so severe that the Treasury Department had to provide the FHA with a $1.7 billion bailout in 2013, the first in the agency’s history since its creation in the 1930s.

All of which led to the dramatic changes coming April 27. Applicants are now going to need to demonstrate upfront that they have both the “willingness” and the “capacity” to meet their obligations. Reverse-mortgage lenders are going to pull borrowers’ credit reports from the national credit bureaus, just as they do with other mortgages.

Applicants are going to have to show that they paid their real estate taxes, homeowner association fees and other property-related charges on time for at least the past 24 months. They will be asked to produce documentation of their employment status (if they are still working), income and financial assets, and they will undergo a “residual income” analysis that examines all their monthly expenses and cash flow.

If they get inadequate marks on these tests, they may be required to create a “life expectancy set-aside” – essentially a reserve account or escrow funded wholly or in part from their loan proceeds. For some borrowers, the set-asides may be so substantial they’ll be left with minimal cash at closing, making the entire reverse-mortgage process a waste of effort.

All of which, say experts in the reverse-mortgage industry, will exclude potentially thousands of senior homeowners from obtaining a reverse mortgage, especially those who are on the margins economically and need the cash to help pay for ongoing household expenses.

Reza Jahangiri, chief executive of American Advisors Group, the highest-volume reverse-mortgage lender, told me last week that his Orange, Calif.-based company expects a decline in loan activity by 8 to 10 percent after the financial assessment rules take effect. He also expects a countervailing shift toward “mainstream” borrowers who seek to use a reverse mortgage as part of their overall retirement financial planning, including raising money to purchase a new house or to establish a flexible line of credit they can draw from as needed. Many seniors currently can’t qualify for home-equity credit lines from banks, he said, but with adequate credit, income and assets, they can qualify for a reverse mortgage in the form of a credit line.

Maggie O’Connell, who originates FHA-insured reverse mortgages for the Federal Savings Bank from offices in Reno, Nev., and Danville, Calif., says she has been scrambling to give pre-deadline assistance to people who might encounter difficulty – or be turned off by all the required documentation – under the new rules. Although she may do fewer loans in the short term, she said in an interview, in the long term the tougher rules “are probably all in all a good thing” because they will prevent financially weak borrowers from taking out loans that they can’t handle and that will eventually end up in default, “which is bad for them and bad for us.”

Bottom line- Tougher credit standards have come to reverse mortgages – finally. Before applying, be aware of the types of documentation you’ll need. And when you talk with a lender or financial counselor about a reverse loan, make sure you involve the entire family, so everybody knows what you are getting into.