SECU’s First-time Homebuyer ARM Product Yet to Record Loss

LAS VEGAS – With both lenders and borrowers skittish over adjustable-rate mortgages in the wake of the collapse in the subprime market, State Employees’ Credit Union is reporting it has yet to suffer a loss in its unique and popular ARM product. The Raleigh, N.C.-based SECU has a two-year ARM aimed at first-time homebuyers that cannot readjust up or down more than one percentage point at any time it reprices. Moreover, the country’s second-largest credit union requires no down payment and has begun to offer 110% financing at a time many CUs and lenders would see that as just more risk. But CEO Jim Blaine said that hasn’t been the case. “We have multiple hundreds of millions of dollars in loans out but we have not had a loss on this program,” said Blaine. Instead, he said, SECU came to recognize that many people are paying rent equal to a mortgage payment, and simply cannot come up with a 10% or 20% downpayment. “We underwrite these loans carefully,” he said. “It builds goodwill with your members. It’s a warm and fuzzy. Would you rather make a 6% or 7% mortgage or have it earning 4% in your corporate credit union?” Most recently, with the 110% financing option, SECU has been depositing the extra 10% in a 10-year CD that is pledged against the loan. SECU pays a dividend on the CD equal to the loan rate. “What happens is that 10 or 15 years out, not only do they own their home they have a $10,000 or $15,000 pool of savings,” he said.