Skyrocketing Home Prices Force Loan Creativity

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As home prices continue to skyrocket in the Golden State, one credit union that serves the San Francisco Bay Area is getting creative with mortgage products designed to help first-time buyers.

Meriwest Credit Union, through its CUSO, Meriwest Mortgage, booked 133 loans for a total of $43 million in the first quarter of 2005, thanks largely to its "interest first" and "zero down" mortgage programs. According to Anita Domondon, vice president of loan administration for Meriwest Mortgage, 46% of its first quarter mortgages were interest first, while 10% were zero down.

Another program introduced in March - which offers below-market mortgages and lower closing costs via a partnership with the California Housing Finance Agency - is gaining in popularity, she said.

"Members are very happy to have these options," said Domondon. "The interest first products are very popular because the median home price in the Bay Area is more than $600,000."

Two Options

Jim Cavanagh, a loan consultant for Meriwest Mortgage, said members have two options with the interest first loan. In one, the the rate moves from variable to fixed after five years-the same time the borrower begins paying principle on the loan, which he described as a "potential double-whammy."

"The people who were getting those loans didn't intend to be in those houses after five years, anyway," he said. "But, we introduced a new product last week. The interest rate changes in year six, but the borrower does not pay principle until year 11."

Cavanagh said most of the buyers he sees are looking for a house priced about $600,000. He said the typical buyer has sufficient income to qualify for a loan, but not the liquid savings for a down payment. "Twenty percent of $600,000 is $120,000. It takes a long time dropping change in a jar by the door to add up to that much," he said.

Another option Meriwest Mortgage offers members is a single premium for private mortgage insurance (PMI). Cavanagh said rolling PMI into the loan not only is cheaper, but the payments then are tax deductible.

"That's one way for members to keep their payments down, even when they are not putting 20% down. Some people do an 80/20 loan, where they take out a loan to pay the down payment, but our product is less expensive."

Online Pre-Approval

Members appreciate the fact Meriwest Mortgage offers pre-approval in just minutes after filling out an online application, or applying in person, Cavanagh said.

"We have an underwriter and a loan processor right here in the building," he explained. "It allows us to be very responsive to member needs. It is a competitive advantage."

Added Domondon, "And it allows us to close loans in just 10 days. It helps that our membership is a group of solid borrowers."

To keep its members informed, Meriwest Mortgage offers monthly home buying seminars, she added.

Membership in Meriwest CU is available to residents of five Northern California counties: San Francisco, Santa Clara, Alameda, Contra Costa and San Mateo. Including its SEGs, the $940-million credit union serves 68,000 members.

Meriwest Mortgage was founded in January 1993.

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