Billion-Dollar Helper

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More than 60 credit unions across the country have pledged to lend $1-billion in subsidized mortgages to low- and moderate-income homebuyers under a new affordable housing program unveiled by CUNA last week.

"Our objective was to try to find a way to serve people of modest means, especially in this critical area of housing," said Rudy Hanley, president of Orange County Teacher's FCU, who helped develop the program for CUNA and whose members live in one of the most expensive housing markets in the country.

Under the program, called Home Loan Payment Relief (HLPR and pronounced "helper"), participating credit unions have agreed to offer adjustable-rate mortgages, 3-in-1 ARMs, at 1% (100 basis point) discounts to members earning the area's median annual income or less. In effect, those credit unions have agreed to subsidize the cost of the mortgages to the tune of the 1%.

The terms of the loan will allow the rate to start increasing by no more than one percentage point per year after the third year, depending on the market, and by no more than five percentage points over the first eight years. Some of the credit unions have agreed to lend up to 97% of the purchase price of the home.

While the program is targeted towards first-time homebuyers, it will be offered to all eligible members, participants said.

"The features are really designed to make more homes available to more people," said Hanley. "In Orange County, the housing prices are going up so rapidly that people are getting priced right out of the market."

CUNA President Dan Mica said the program is geared especially to the core credit union membership-low- and moderate- income Americans.

"With the huge increases in the price of home-ownership, more and more the American dream is disappearing," said Mica "We think this is a phenomenal product at a time when Americans need it."

Example In Baltimore

Bert Hash, president of Municipal Employees CU, another participant in the development of the program, said his Baltimore credit union has had success in offering similarly subsidized mortgages to residents of Baltimore with low delinquencies or charge-offs. He noted that under normal circumstances short-term ARMs allow for lower monthly payments, and the subsidized rate will bring those monthly payments even lower for eligible borrowers.

Many of the participating credit unions plan to hold the loans in their portfolios, but since the loans will be underwritten to secondary market standards they will be eligible for sale.

To date CUNA has obtained commitments from more than 60 credit unions to lend as much as $1 billion, but they hope to grow the program to as much as $10 billion in loans over the next five years. "This is the single biggest program we have ever put together to aid the credit union movement," said Mica.

Participants acknowledge there will be some interest-rate risk in holding the loans that must be planned for, especially if mortgage rates rise.

NCUA examiners have given the program its unofficial approval, according to Hanley.

The credit unions with the biggest pledges under the program are: Navy FCU ($125 million); Boeing Employees CU ($100 million); Orange County Teacher's FCU ($60 million); Suncoast Schools FCU ($49 million); Bethpage FCU ($30 million); Security Service FCU ($25 million); Star One CU ($22 million); Wescom CU ($20 million); and Alaska USA FCU ($20 million).

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