Credit Unions Enter Mortgage Market

Traditionally credit unions have been used for lines of credit and car loans, but now they are entering the mortgage market.

Although their rates are not amazingly competitive, they do have the advantage of being able to offer lower fees and more flexible terms. Some have quite relaxed membership rules, so that this source of lending is not just available to those working with a certain labor union or company.

 

Guy Cecala, publisher of trade newsletter Inside Mortgage Finance says ''The credit unions have emerged as fairly aggressive; mostly that's because they've decided it's a good use of their assets. That is, rates paid to depositors remain low, and lending those deposits to home buyers remains profitable.''

Robert Neneroff, spokesman for Melrose Credit Union in Queens, New York says ''A by-product of this philosophy is the ability to offer attractive rates, thus attracting new members.'' He thinks that by offering lower up-front fees the overall cost of borrowing could be reduced.

In the period from the mid-nineties to the mid -2000`s lending by credit unions accounted for just 2% of the first time buyers mortgage market. By 2008-9, this figure had increased to 4.5%, according to Bill Hampel, chief economist at the Credit Union National Association.

 

The unions were able to keep on lending throughout the crisis as they didn't tend to be involved in subprime mortgages. Credit unions have also tended to hold mortgage loans in their own portfolios rather than sell them on,  so remained unaffected by the whole Wall Street mortgage securitization business.

According to Richard Maxstadt, senior vice president at CUC Mortgage Corporation, there has been a 15% increase in mortgage
lending to home buyers, and especially to first time buyers. Although the majority of the loans are standard 30 year term mortgages, some are tailored to market niches, such as those offered by Pentagon Federal Credit Union, which has a mainly military membership.