Mortgage Lets Members Reset The Rate
FAIRFAX, Va.-Credit Union Mortgage Association (CUMA) has closed its first HarmonyLoan, a mortgage that allows consumers to reset their interest rate with the click of a mouse, foregoing additional closing costs and lengthy processing.
"It puts members in control of their mortgage loan," said Scott Toler, CEO of CUMA, a mortgage CUSO owned by 46 credit unions spread across Maryland, Pennsylvania, and the District of Columbia.
Consumers must wait six months after their initial closing before performing a rate reset, and can then adjust their rate every 120 days as long as they have the loan. While greater convenience is the advantage for consumers, Toler said credit unions benefit by keeping members at the CU when they refinance, keeping the loan on the CU's books, and preventing servicing from running off. CUMA provides the servicing through a subcontracting agreement.
When members apply for a HarmonyLoan they go through a standard closing and credit check, pay a 1% origination fee plus closing costs. But Toler said the rate is about 25 basis points above market, and when members reset, the rate they receive is about 25 basis points above the going rate. CUMA currently offers a 15-year fixed (4% APR), 5/1 ARM (3.5%), 7/1 ARM (3.78%), and 10/1 ARM (4.5%).
The member must have had no late payments for the preceding 12 months in order to qualify for a rate reset.
Toler explained that when a loan is reset, the payoff date remains the same, but on an ARM, the fixed-rate period is extended. "For instance, a member has a five-year ARM with two years remaining on the fixed-rate period when resetting. He gets a new five-year fixed-rate period after resetting."
Members go to www.cuharmonyloan.com, and through a secure 24/7 interface reset their rate. "When they adjust their rate, members get an immediate e-mail confirmation," Toler explained. "They sign it and send it in. We countersign it and the rate reset is done. There is no other paperwork, no credit check, no meeting they have to attend." To reset, members must be up to date on loan payments and have no late payments within the last 12 months.
CUMA is partnering with the Vienna, Va.-based Mortgage Harmony Corp., which trademarked this method of rate resetting, on the offering, Toler said. The $220-million Agriculture FCU, Washington, is the first CU to close a HarmonyLoan, which is available to the association's credit union members, based primarily in the Greater Washington, D.C. area.