Coastal Federal of N.C. Offers No-Down-Payment Mortgages

Targeting first-time homebuyers strapped for a down payment, Coastal Federal Credit Union of Raleigh, N.C., has started offering first mortgages with 100% financing.

The product is similar to Fannie Mae's 97% Community Home Buyers Loan, which Coastal Federal had been offering since May - with minimal results.

"We were marketing the 97% loans and couldn't get any interest," said Larry T. Wilson, chief executive of the $498.7 million-asset credit union. "Once we said 100% with nothing down, we got a pretty good response."

The introduction of the 100% loan also has triggered more interest in the 97% product, Mr. Wilson said.

Coastal Federal started offering 100% financing Aug. 1. It closed the first loan at the end of the month and expects to make a dozen such mortgages each month, Mr. Wilson said. The average loan size is expected to be $110,000.

The credit union has set aside $5 million to fund the loans. "We'll take another look at it once the money runs out," Mr. Wilson said.

The product follows the same underwriting guidelines as the 97% program. The rate is 75 basis points higher, but Mr. Wilson said the price comes out a wash - because members don't have to purchase private mortgage insurance, which they must for the Community Home Buyers Loan.

"We take the 3% risk Fannie Mae won't cover and charge the members what they would pay if they got a 97% loan with PMI," Mr. Wilson said.

Other credit unions are trying to reduce the down payment burden for first-time homebuyers - and at the same time position themselves as more aggressive mortgage lenders.

Other credit unions have taken different approaches. For example, Seattle-based Credit Union of the Pacific this year started offering a first-time home buyer program that requires a 1% down payment.

Last October, Washington State Employees Credit Union, Olympia, started making an effort to help members who don't meet secondary market standards. To this end, it does some 100% financing.

"We found we were turning down people who were qualified borrowers but didn't meet some of the qualifications, such as equity or income," said William Brandt, chief executive of $500 million-asset Washington State Employees. "But now we can provide housing to people who needed it and were denied loans."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER