Credit unions ramp-up mortgage lending

Credit unions have been expanding their presence in housing, more than quadrupling their share of total mortgage market volume nationwide in the past nine years, according to the National Association of Federal Credit Unions, by offering deals that simply can’t be found at most banks.

Case in point: The country’s largest credit union, the $64 billion-asset Navy Federal, closed more than $1 billion in home-purchase loans during the month of March alone. That’s big. But what’s really extraordinary: 59 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 home purchasing is around 40 percent but currently is just 28 percent to 29 percent, 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 the standard low-down payment menus of the Federal Housing Administration (3.5 percent minimum) and the Department of Veterans Affairs (zero minimum) loans.

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 for membership.

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, which is open not only to NASA-related employees but 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 “lender credit” toward closing costs if the home purchase doesn’t go to settlement by the contract date.

Still other credit unions help new homebuyers 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 come-ons like these increasing their risk of defaults and losses?

Counterintuitive though it might 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 portfolio of zero-down payment, first-time buyer loans “actually performs better” than the entire mortgage portfolio, though she did offer specific figures.

“We know our members,” said Miller, 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 who 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: For a first-time buyer, tax policy issues probably aren’t a concern. They just want the lowest-cost option for a mortgage.

Not all credit unions offer attractive loan deals, but many do. To check out credit union membership possibilities in the New York area, go to www.culookup.com.

Ken Harney is a syndicated columnist.