A Little Help For HLPR
CUNA is looking to tweak its Home Loan Payment Relief (HLPR-pronounced "helper") program amidst the rising tide of interest rates.
"We are forming a working group to look at this," said CUNA Economist Steve Rick. "We want to make sure that we are responsive to market changes, and we want to make sure there are no unintended consequences."
For example, when the HLPR loan was introduced last year, it was designed as 3-1 adjustable rate mortgage (ARM), with a rate one percentage point below the market rate. But with the advent of the flat yield curve, members are more interested in going with a longer term.
"We've seen some credit unions doing it as a 5-1 ARM, and we're even considering a 30-year fixed version of the HLPR," Rick reported.
So far, 139 credit unions are participating in the program, with a total commitment of $1.1 billion set aside for HLPR loans. To date, Rick said, about $100 million worth of HLPR loans have been originated.
"Credit unions really have just started making these loans," he explained.
While the working group will be looking at different ways the HLPR loan can be tweaked in response to the changing interest rate environment, the benefit of the loan, which is the backbone of the entire program, will remain the same.
The Idea Behind The Idea
"The idea is to do something that makes owning a home more affordable for people of modest means," he said. "The basic model is a 3-1 arm, where the interest rate is fixed at 1% below market for three years, then adjusts every year after that. But there's a cap on how much it can adjust from year to year, so another benefit of the program is that it's a slower adjustment."
Even as the growth in interest rates make longer-term borrowing more attractive to members, Rick noted that the HLPR program may actually have an even stronger appeal for credit unions right now.
"The difference between short-term rates and long-term rates is at a point where they're so similar that we have a flat yield curve. This reverses the incentives," he suggested, noting that normally a credit union would be more interested in lending money longer term and borrowing money shorter term. "But in some ways, there's more incentive right now for credit unions to offer HLPR because of its shorter term."