Crowd Shares Ideas On How To Expand Mortgages

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More than 200 credit union representatives turned out here for the latest NCUA Partnering and Leadership Successes (PALS) workshop, this time to talk about affordable mortgages.

"I hope the ideas shared in this workshop will inspire more credit unions to reach new markets and help people from all walks of life achieve the American dream," said NCUA board member Debbie Matz, who organized the workshop. "Low- to moderate-income families, single mothers, and minorities are among the fastest-growing markets for potential homebuyers. That's where the growth is. By forming partnerships to leverage resources and share risks, credit unions can rebuild their mortgage market share and find new homebuyers who will become loyal members."

Jim Blake, CEO of Harbor One Credit Union in Brockton, Mass., challenged fellow credit unions to make affordable mortgages in new markets. "With our net worth ratios well over 10%, how can we not make these loans? These loans are opportunities to show the real difference between credit unions and banks."

Numerous Ideas Presented

During a panel discussion, the following ideas were presented:

* St. Mary's Bank Credit Union in Manchester, N.H., is partnering with Manchester Neighborhood Housing Services to help low- to moderate-income borrowers earn rental income by buying into multi-family owner-occupied properties. Borrowers receive down payment assistance and counseling on life skills, financial management, and property management. Bruce Croteau, the credit union's senior vice president of community outreach, said the partnership has been a "major success in revitalization of our worst neighborhoods."

* The Summit Federal Credit Union is partnering with the City of Rochester, N.Y., local businesses, and Fannie Mae to offer "Employer-Assisted Housing" to inner-city homebuyers. The Summit waives $400 in mortgage fees and provides a credit equal to 1% of the principal, which homebuyers can use toward their down payment or closing costs. The Summit's legal and appraisal partners discount their fees up to $250 per loan, and the City matches employers' contributions up to $3,000. Mark Gregory, vice president of lending, said the program removes the top two "obstacles to homeownership: money for a down payment and closing costs, and finding an affordable, likeable home."

* Workers' CU allows first-time homebuyers to make down payments as low as 3% with no closing costs. To save these borrowers from private mortgage insurance premiums, Workers' CU partners with the City of Fitchburg, Mass., to finance the other 17% of the down payment with a "soft" second mortgage that is forgivable after 15 years.

* Service CU in Portsmouth, N.H., is partnering with the U.S. Department of Agriculture (USDA) to offer 100% financing on mortgages in rural areas. The partnership also reduces the credit union's risk, as USDA guarantees 90% of each mortgage.

Vermont Development CU CEO Caryl Stewart said that through "counseling-based lending, we look at everyone as either 'qualified,' 'near-term qualified,' or 'long-term qualified.' " The credit union uses the motto, "We don't say 'no,' we say "when.'"

Nelson Merced, director of national initiatives for Neighborhood Reinvestment Corp., told the meeting that referrals are available in 2,500 underserved communities through Neighborhood Reinvestment's network of NeighborWorks organizations. Last year alone, NeighborWorks organizations helped more than 80,000 low- to moderate-income families buy or improve their homes. More than half of those families are minorities.

As credit unions make more mortgages, they also need to manage interest rate risks. Experts from NCUA, Fannie Mae, Freddie Mac, the Federal Home Loan Bank of Boston, and other advisors offered strategies to manage those risks. As first reported in The Credit Union Journal May 31, with the prospect of rapidly rising rates, credit unions were urged to conduct asset/liability management models with shock tests up to 500 basis points.

If a test shows more risk than is acceptable under an individual credit union's policy, experts suggested taking one or more actions immediately: 1) Sell long-term fixed-rate loans to the secondary market; 2) Lengthen the duration of liabilities by borrowing and/or promoting longer-term savings; 3) Shorten the duration of assets by hedging and/or promoting shorter-term loans.

Otherwise, as NCUA Director of Examination and Insurance Dave Marquis put it, "Some credit unions holding 6% fixed-rate mortgages in portfolio could be in a painful situation."

The next PALS workshop, "New Ideas to Reach New Members," is scheduled for Oct. 27 in Honolulu on the final afternoon of CUNA's Future Forum.

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