You’re feeling pretty good about yourself these days. While lenders all over the country were pushing risky loan products, you weren’t. Negative amortization? Never. 100% LTV? No way. High debt-to-income ratios? Not you. Adjustable rate mortgages not in a member’s best interest? Hey, you know better than THAT.
Your credit union did the right thing. Some lenders didn’t, and now it’s coming back to haunt them. Some lenders pushed sub-prime loans and are now stuck with an increasing number of foreclosures on their hands. It really pays to stick with just plain vanilla loans, doesn’t it?
Actually, no. It doesn’t.
While it’s in no one’s best interest to originate loans that do nothing but promote pipe dreams and end in foreclosure, sticking to only plain vanilla loans is not in your members’ best interest either. Why? Because when you can’t, or when you won’t, write the loan, your member will find someone else who will. And, since you’re only doing plain vanilla, 20% down, cream-puff-perfect-credit loans, your member with the less-than-perfect-but-not-too-bad credit will find another lender.
And that, of course, is their choice. But while you can argue that there’s nothing wrong with only taking on loans that have almost no risk, consider what likely happens next.
Your member, who was the perfect candidate for a low-rate, low-down payment FHA loan may end up with a sub-prime mortgage. Why? Because, their mortgage was originated by a commissioned loan officer who wanted a few hundred dollars extra on his next commission check, and he knew he could get it. Instead of 7.5% on a 30-year fixed-rate FHA product, your member got 11.25% on a 30-year fixed rate mortgage as a sub-prime borrower. You may not feel guilty about it, and it may not be your problem, but consider this: What would have happened if, in addition to the plain vanilla loans, your credit union offered other products, too? Not subprime, of course; but perhaps FHA, VA, and other programs that are meant to help consumers become homeowners when they’re really, truly, ready. There are so many products and programs that are not subprime. But they’re not plain vanilla either. And, while some credit unions offer them, many do not.
Some credit unions choose not to take on the risk. Yet that doesn’t have to be a problem. There are many lenders out there who will partner with you on a level that works for you, so there’s little risk on your part. CU Members Mortgage is one of them. The key is to let your members know you can help. More important, you protect members from lenders that will lead them to loans they can’t afford in the long haul.
But what if you haven’t offered mortgages in the past? Is it too late to offer them to members now?
It’s not. A recent Wall Street Journal article acknowledged the fact that consumers are beginning to realize no one can help them like their credit unions. Consumers’ trust in mortgage lending is at an all-time low. Who will members turn to if not their credit union?
This is actually a great time to get started. Rates are very low, and members are ready to refinance. Others who may not have even considered home ownership may now find it surprisingly affordable with low rates and more affordable housing available. Regardless of what you’ve been doing in the mortgage arena until now, see to it that you have enough non-vanilla programs available to help every member that should be helped.
Be there for your members. Include a fair mix of products for them. Or at the very least, hand them the phone number of a reputable lender you know you can trust and has the products your members need. Even better, sit down with a lender and discuss a partnership so you can help the member, and even generate some income, but not incur any risk. More than 850 credit unions are already doing it.
And then, you can really feel good about yourself. Because it’s not just about avoiding subprime loans; it’s about finding the right balance between risk for your credit union and being a strong financial institution your members can rely on.
Linda Clampitt is Senior Vice-Ppresident with CU Members Mortgage and can be reached at lindacl
