Iowa Initiative Seeks To Offer Sub-Prime Mortgages

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In a move to assist members with less-than-perfect credit, The Members Group recently announced a partnership with Central States Mortgage to provide non-traditional mortgages.

TMG Director of Mortgage Lending Sara Schwartz said the new sub-prime program will be an addition to the company's traditional mortgage line.

Schwartz noted a multitude of factors can contribute to a struggling credit rating, including high student loans, unemployment and even identity theft. These "less-than-ideal" members "need a little extra help" and can be placed on the track of home ownership and building a strong credit base, she said. Schwartz also said the mortgage program allows credit unions to maintain relationships with members who might otherwise obtain a sub-prime loan somewhere else, possibly with an unscrupulous lender.

The loan is processed using traditional secondary market guidelines. If the application is denied, it is then considered for a sub-prime rate, which, due to the increased risk, is higher than the traditional mortgage rate.

Schwartz said the rate of each loan will vary with each applicant, but that there has been an average 7.5% "ballpark" rate for first-time loans thus far. TMG has processed about 100 applications totaling $3.5 million in dollar volume under the program, she said. Schwartz said TMG will rely on credit union and member feedback during a six-month evaluation process.

Schwartz said Central States has a solid reputation and doesn't hit borrowers with "junk fees" or hidden costs. "They're not the typical sub-prime lender," she said.

Central States COO Harish Patel and Marketing Director Molly Michelz said the program will offer loans from a trusted name combined with a high level of member service that will retain membership and benefit both parties. "We're trying to keep it in the family," Michelz said.

Central States asserts that the loan process will be largely the same, but features loan officers examining the unique situation behind each application in order to avoid having the member look elsewhere.

"They will really get taken for a ride," Patel said. "We want to offer the best product at the best price."

Patel said Central States didn't want to approach every credit union one at a time and made more sense to work under the "umbrella" of The Members Group.

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