Targeting first-time homebuyers strapped for a down payment, Coastal Federal Credit Union of Raleigh, N.C., has started offering first mortgages with 100% financing.

The product is similar to Fannie Mae's 97% Community Home Buyers Loan, which Coastal Federal had been offering since May - with minimal results.

"We were marketing the 97% loans and couldn't get any interest," said Larry T. Wilson, chief executive of the $498.7 million-asset credit union. "Once we said 100% with nothing down, we got a pretty good response."

The introduction of the 100% loan also has triggered more interest in the 97% product, Mr. Wilson said.

Coastal Federal started offering 100% financing Aug. 1. It closed the first loan at the end of the month and expects to make a dozen such mortgages each month, Mr. Wilson said. The average loan size is expected to be $110,000.

The credit union has set aside $5 million to fund the loans. "We'll take another look at it once the money runs out," Mr. Wilson said.

The product follows the same underwriting guidelines as the 97% program. The rate is 75 basis points higher, but Mr. Wilson said the price comes out a wash - because members don't have to purchase private mortgage insurance, which they must for the Community Home Buyers Loan.

"We take the 3% risk Fannie Mae won't cover and charge the members what they would pay if they got a 97% loan with PMI," Mr. Wilson said.

Other credit unions are trying to reduce the down payment burden for first-time homebuyers - and at the same time position themselves as more aggressive mortgage lenders.

Other credit unions have taken different approaches. For example, Seattle-based Credit Union of the Pacific this year started offering a first-time home buyer program that requires a 1% down payment.

Last October, Washington State Employees Credit Union, Olympia, started making an effort to help members who don't meet secondary market standards. To this end, it does some 100% financing.

"We found we were turning down people who were qualified borrowers but didn't meet some of the qualifications, such as equity or income," said William Brandt, chief executive of $500 million-asset Washington State Employees. "But now we can provide housing to people who needed it and were denied loans."

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