Mortgages & Credit Unions

In a time of tighter underwriting standards and declining home values where can a person turn for options when their current mortgage lender or bank is saying no? How about your local credit union?

Haven't you thought about this option before? You're not alone. Roughly, only 2% of all outstanding first mortgage loans are held by credit unions. There are a number of reasons for this:

1) A good portion of credit unions (44% see last section of article) do not even offer mortgages.

2) In the past, you also needed to "qualify for membership" which could limit which, if any, credit union you could establish a relationship with. Today, many credit unions offer "community charters" which allow membership to those that live, work, worship, etc, in a particular geographic area. This makes membership much more attainable.

3) Those credit unions that do offer mortgages are simply not the first choice for many borrowers as they do not advertise as heavily as some of the larger banks such as Wells Fargo or Countrywide/Bank of America.

Credit Unions at their very heart were created for low to mid income individuals in mind. Credit Unions are owned by their membership. They are not worried about boardrooms and stock price as banks tend to be. Credit Unions are worried about service and relationship.

What does mean for you and your mortgage? It means that your relationship could outweigh other financing hurdles that you may be facing with another bank/lender. The deeper history that you have with a credit union, the more likely a credit union will take a chance on you.

3 factors that Credit Unions will look at beyond just your credit score:

1) Do you use them as your primary institution? If you do and if you have direct deposit of your income.

2) Have you had loans in the past? Have you paid those loans on time or worked with the credit union in times that you were struggling financially?

3) What is the story to why you are refinancing? Has your family made a bad financial decision and didn't think of the consequences? Young and unresponsible? Medical bills? Death? Divorce? Kinda sounds like FHA doesn't it? But if your story makes sense, a credit union can help you also.

Now, it may not mean that you will get into that 30 year fixed rate mortgage that you hoped for. If a bank/mortgage lender is having trouble getting you qualified for a traditional 30 year fixed rate mortgage, a credit union is going to have a similar issue. But their may be alternatives. Maybe the credit union will do another ARM but with a longer initial period, such as 5 years or more. A number of credit unions still offer balloon mortgages which may make sense.

The credit union where I work (yes, I'm biased. But I have worked for mortgage lenders in the past) offers a 10 year balloon. What this means is that your payment would be a 30 year term, giving you the payment you're looking for, but it requires that if you have not refinanced, sold, or paid off the home at the end of 10 years the remaining loan balance comes due and you would be required to refinance at that time at current rates. Who knows what rates will be 10 years from now? But you have 10 years to work it out. That gives you plenty of time to get your credit where it needs to be, wait through rate cycles if you need, and the rate doesn't change throughout that term. Not a bad "short term" solution.

Another credit union in my market offers a 15 year balloon that can be converted into a fixed rate mortgage (at prevailing rates) at that time or another balloon term extended for 5 years for a small fee.

The point is, credit unions are more willing to be creative to help you find ways to afford your home without making you "home poor". And when you have issues paying on your mortgage, credit unions are much more willing to work the situation out.

Now, there is no guarantee that your credit union is going to be able to help you out in every situation. There is only so much risk that they are willing to take. Credit Unions will not fill the gap in subprime loans. Credit Unions overall did not get involved in subprime loans and as such their loan performance reflects in their deliquency rates, foreclosures, and workouts (this is a small sampling from California).

If your home is still affordable in your budget and you have an established history with a credit union (and even if you don't), call them and see what options they may have available to you. What do you have to lose?