SAN JOSE, Calif.-The San Francisco Bay Area's housing market does not always fit neatly into the secondary market's loan caps, but that fact is not stopping Technology CU from offering mortgages up to $1 million.
Fannie Mae and Freddie Mac define a "jumbo" mortgage loan as one in excess of $729,750. It might sound strange to people in many parts of the U.S., but in Tech CU's area of operation, $700,000 might not necessarily buy a lot of house-even after the depreciation of the last two years.
Therefore, explained Steve Donahue, AVP of mortgage origination for $1.2-billion Tech CU, a bit of creativity is needed.
"The Bay Area is classified as a high-cost area by Fannie Mae and Freddie Mac. We have inquiries by our members for homes up to $1 million," he said. "We wanted to accommodate those members, but we also wanted to be able to sell those loans. We sell loans under $729,750 to Fannie and Freddie, but we keep the others. Right now with our cost of money, it is a good product. It has picked up our purchase volume by 20% during a traditionally slow buying period."
Tech CU's 5/1 ARM up to $1 million offers what it calls a "highly competitive" start rate that does not adjust for five years. At that point, it adjusts based on LIBOR plus margin. The current starting rate is 5.375% with zero points.
"The rate is fixed for five years, so typically people refinance in year four," Donahue said. "Everyone in the nation would prefer to have a 30-year, fixed-rate loan, but buyers in this area are a little more sophisticated. People are attracted to the rate and the fact houses are so much more affordable than they were two years ago."
As is the case in many areas of the country, many mortgage lenders have exited the Bay Area housing market, leaving an opportunity for CUs such as Tech, Donahue continued.
"Most definitely. 2009 was the best year we have ever had in real estate lending. Not only is there a lot less competition, we are seeing people wanting to deal with a local lender. We write the loan and process it right here, we don't farm it out. People like that local identity."
It helps that Tech CU is in "very good shape financially" and has available liquidity, Donahue said. He noted the credit union has been in real estate lending since 1992, and its loan portfolio is 75% real estate. "Sometimes we sell loans but keep the servicing. That allows us to sell 90% of the loan to Fannie Mae and keep the servicing rights. The payments are made here, and the ownership process is seamless to the members."
According to Donahue, other CUs should look into offering jumbo loans. "I would really recommend this because we are attracting affluent buyers. We hope over the years those members will add more loans and products."
