NEW BERLIN, Wis. -
Landmark, Wisconsin's largest credit union, introduced the Rescue Refinance home loan program last week to help people with low credit scores better manage their mortgage debt. The credit union has committed $10 million to help borrowers unwrap themselves from sub-prime loans with fluctuating monthly payments that can re-price as often as weekly based on terms of the agreement. Despite monthly payments, some sub-prime mortgages actually increase their loan balance, making it difficult to satisfy the debt, said Ron Kase, president of $1.05 billion asset Landmark.
"Loans will be available to people with credit difficulties primarily caused by sub-prime loans," said Kase. "We at Landmark hope the program makes a difference in our communities by preserving the benefit of home ownership for members and potential members."
Landmark's "Rescue" program, available to lower-income borrowers in southeastern Wisconsin, is built on a non-convertible 5-year adjustable-rate mortgage that offers financing at nearly 2 percentage points below that of many adjustable sub-prime loans for its best borrowers. The current rate of 6.375% is available to borrowers with good credit carrying mortgages with a loan-to-value ratio of 90%. Additional rates and terms are available to borrowers with lower credit scores and on mortgages with loan-to-value ratios of up to 105%. By comparison, most area sub-prime lenders offer rates of 8.25% to even the most credit-worthy borrowers.
Landmark's "Rescue" loan rates can be adjusted by no more than 1% annually, with a 6% cap over the life of the loan. The credit union adds an additional 0.125% if loan-to-value ratio is more than 90%. If a borrower's credit score is below 620, 0.125% is added; if that score is below 600, another 0.125% is tacked on. Loan fees include a $375 application fee, $495 in closing costs and .50 point.
All of the additional interest-rate increases are added to mitigate increasing risk to the credit union, which has not relaxed its lending standards to launch the program. Private mortgage insurance is required on all "Rescue" loans. The loans are available only to credit union members, but borrowers can become members at the time of application.
The idea for landmark's "Rescue Refinance" program came about during a brainstorming session at the credit union and in response to sub-prime horror stories reported in the press, said Betty Feierstein, Landmark's vice president of mortgage lending.
"One cannot open a newspaper these days without seeing an article about people in trouble because they got a 'sub-prime' home loan awhile back," Feirersten said. "We'll go up to 105% of value because we believe there are some loans out there with negative amortization."
Landmark has already helped a Hmong family from Milwaukee unravel itself from sub-prime lenders, said Feierstein. Despite a credit score of 720 and possibly due to family members' limited English language skills, the borrower ended up with a sub-prime mortgage that will cost it $10,000 in pre-payment penalty fees to satisfy. "They're still much better off with the Landmark "Rescue" program," she said.
Landmark's 'Rescue Refinance' is one more effort by the credit union to meet the needs of mortgage borrowers of modest means. In 2006, the credit union committed $10 million to participant borrowers who qualified for a Home Loan Payment Reduction Mortgage under a program launched by CUNA. HLPR was designed to assist first-time homebuyers of modest means obtain a mortgage, with rates and terms based on buyers' qualification and downpayments.
"As a not-for-profit cooperative, we look for ways to return income to our members," Kase said.
