LA Times - April 19, 2015

BY Kenneth R. Harney

CREDIT UNION OFFERING MORTGAGE DEALS - MEMBERS CAN GET NO-DOWN-PAYMENT HOME LOANS AND HELP WITH CLOSING COSTS.

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 expanding its mortgage business. Credit unions have been increasing their presence in housing — more than quadrupling their share of total mortgage market volume in the last nine years, according to the National Assn. of Federal Credit Unions — by offering deals you simply can't find at most banks.

Case in point: The country's largest credit union, Navy Federal, closed more than $1 billion in home purchase loans during the month of March alone.

But what's really extraordinary is that 59% 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% but currently is just 28% to 29%, according to the National Assn. 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% 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% financing on mortgages as large as $400,000 with no private mortgage insurance premium payments. The interest rate as of mid-April: 4.25% 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%.

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 home 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% 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%. 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 not have specific figures on hand.

"We know our members," Miller said, adding that 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 Assn., 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 for a mortgage. Not all credit unions offer attractive loan deals, but many do. To check out credit union membership possibilities in your area, go to https://www.culookup.com.

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