Shopping for a loan? Credit unions can be consumer-friendly option

From 11/9/14

Credit unions have gained mortgage market share in recent years. They usually aren’t any cheaper when it comes to interest rates, but they tend not to tack on the superfluous fees that other lenders seem to love. (Keith Srakocic / Associated Press)

Credit unions reached a pair of milestones recently, and that’s good news for home buyers.

The nation’s 6,557 credit unions surpassed 100 million members in June, according to the Credit Union National Assn. But more important, at least to the housing market, credit unions have posted a 10% year-over-year increase in mortgage originations as of the first half of 2014.

That means these service-oriented, member-owned cooperatives now have more than an 8% share of the home loan market. That’s three times what it was prior to the recession.

Granted, purchase-money lending by other institutions is way down, which automatically gives credit unions a larger share. But there’s no doubt that while other lenders are losing business, credit unions are boosting theirs.

Nearly two-thirds of all credit unions offer mortgages, and those that don’t offer them tend to be very small. So some 98% of the vast credit union membership is affiliated with institutions in the mortgage business.

Mike Schenk, vice president of economics and research at CUNA, said his members have posted huge membership gains, in part because they offer financing for new and existing houses.

“Definitely mortgages have played a significant role,” Schenk said. “We’ve seen a very strong increase in originations over the course of the last several years.”

Indeed, mortgages account for 41% of all credit union loans, as opposed to 25% in 2000.

Credit unions are not-for-profit institutions that are controlled by their members. They were first introduced in 1909 to combat the loan sharking and high interest rates that were common at the time among financial institutions serving the working class.

These days, you still have to be a member to borrow money, whether for a house, car or boat. But if you don’t have a credit union at work, there’s probably one in your local community. Many are either tied to a church or are trade-related — that is, oriented to an association, organization or union. And most are hardly what you’d call exclusive, meaning that practically anyone can join.

There are several reasons why credit unions have gained ground in the mortgage space, not the least of which is that they answer to their members, not a group of outside stockholders demanding a high return on their investments.

“As members, you are the primary focus,” Schenk said. “If you have an account, you are an owner and you have a voice in running that institution.”

During the financial bubble, moreover, credit unions refrained from making the toxic, consumer-unfriendly loans that took some lenders to the brink of failure and pushed others over the edge. That’s why charge-offs at credit unions were only a fourth of what they were for other lenders.

Furthermore, when other lenders hunkered down to weather the recession, credit unions tended to remain fully engaged. And as a result, according to research, consumers trust credit unions more than other banking institutions. “People really do realize CUs are acting in their best interest,” said CUNA’s Schenk.

Many consumers also realize they can save a bunch of money at their credit union. These institutions usually aren’t any cheaper when it comes to interest rates, but they tend not to tack on a bunch of superfluous fees that other lenders seem to love.

And because they are local and member-controlled, they are more likely to consider applicants with a story to tell than some underwriter five states over who is forced to stick to standard guidelines.

The typical loan amount at credit unions is $130,000, and 70% of their loans are the plain vanilla, 30-year fixed-rate mortgage. But that doesn’t mean they can’t be innovative. Several are.

This spring, for example, Mountain American Credit Union, the second-largest in Utah with 488,000 members, was the first mortgage lender in the country to close on an electronically signed FHA loan. And earlier this fall, the pioneering credit union closed on the first e-signed VA mortgage.

A few more examples:

•Pentagon Federal, with 1.3 million members nationwide, pioneered a 5/5 adjustable mortgage in which the rate resets every five years to the market rate at that time. Then the Alexandria, Va.-based institution gave us the 15/15 ARM, which adjusts only once, at the midterm mark.

•Then there was the five-year fixed-rate mortgage from the 41,000-member National Institutes of Health Federal CU. Dubbed the “see ya” loan, it was basically a refinance product so owners could time a special event — retirement, for example, or when the kids start college — to the end of their mortgage payments.

Bottom line: If you’ve overlooked credit unions as a source of financing, look around. Join one and see what it has to offer.










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