Thursday, October 16, 2008

Credit Unions Roll Out Red Carpet

Remember credit unions? They could be your home financing salvation if you need a home loan and your local mortgage lender or bank won't give you the time of day.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - Been down to your friendly neighborhood credit union lately?

What are you waiting for?

You could find that elusive home loan you been unable to get anywhere else.

How's that again?

Credit unions didn't need a bail out during the Great Depression, they didn't need federal intervention during the Savings & Loan debacle and they don't need government assistance now.

Well, except perhaps help getting the word out.

See, credit unions avoided writing subprime home loans and other funny money mortgages like the plague. When subprime borrowers came knocking, they sent them down the street to that now boarded up mortgage outlet. They also shunned those Wall Street smoke-and-mirror securities that turned out to be all smoke and mirrors and no security.

That means credit unions are relatively untainted by the credit squeeze and they have both money to burn and -- as long as they keep rolling the way they roll -- a sound business foundation for lending and savings that isn't likely to come tumbling down around them.

Instead of fearing the next Great Depression, member-owned credit unions are bracing for what could be their boom time in home loans and other financial services, now that banks and mortgage lenders are crashing and burning.

Mortgage production among credit unions is small by comparison to banks and mortgage lenders, but their originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA).

Meanwhile the Mortgage Bankers Association (MBA) reported bank and mortgage lender loan originations took a nose dive, falling 17 percent during the same period.

Credit unions are solvent, thriving and rolling out the red carpet but if you go shopping for a credit union mortgage, leave your subprime attitude at the door.

You won't be coddled, you can't get away with lying on your application, your creditworthiness will have to pass muster and you likely won't get more home than you can truly afford.

Credit unions are more willing than many lenders to make homes loans for the creditworthy, but the old fashioned way. Credit unions need to make money to thrive, but they are non-profits not in the business to make a profit. Credit unions serve member consumers who come together to pool their money with the expectation they'll get a return on their investment.

What a concept.

For non-profits, the fundamentals apply: They take in deposits. They make loans. They charge more on those loans than they pay on deposits. Voila! A thriving business.

Without the profit motive, there was no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes from hell.

Credit unions hold most loans to maturity and return the interest to members in the form of interest-bearing checking, savings and CD accounts. The rest they invest low-risk smart so they can continue to serve members.

Also, because credit unions didn't hop a drunken ride onboard the get-rich-quick home loan assembly line, their members aren't suffering the kind of housing hangover many home owners face today.

Less than 1 percent of all credit union mortgages are 60 days or more late, according to their Credit Union National Association (CUNA), which is just absolutely beside itself these days.

It should be.

Along with fixed-rate 30-year mortgages they also offer conventional adjustable rate mortgages (ARM) and hybrids.

It gets better.

As with other financial products -- savings and CDs -- rates on loans are often better at credit unions. The spread isn't as much with mortgages as it is with credit cards and car loans, but credit unions' mortgage rates are competitive.

As of October 15 CUNA reported (Search "rates" then see "Ratedex") the average rate on a 30-year fixed rate mortgage was 6.27 percent; for a 1-year ARM, 4.91 percent. Meanwhile, the MBA reported an average 6.47 percent for a 30-year loan and an average 6.67 for a 1-year ARM.

"Credit unions are the safest depository institution in the country to put your money in right now," says Dan Mica, President and CEO of CUNA.

He has room to boast.

Just as the Federal Deposit Insurance Corporation (FDIC) insures accounts up to $250,000 in federally insured banks, credit unions are likewise regulated and federally insured by the NCUA for the same amount.

There is one beware.

In an obvious attempt to cash in on vulnerable consumers looking for mortgage relief and home loan alternatives, phishing operations have cast a wide net over the credit union industry.

Phishing is fraudulent email masquerading as real email from a real business. Some of them can be quite convincingly elaborate, using company logos and links to web sites that also appear bona fide. Phishing email scams seek your reply (do not hit the reply button) in order to gain your personal information for use in identity theft operations or other nefarious deeds, ultimately to get at your cash or financial accounts.

If you know you don't have an account with a given company, if you haven't asked your company to contact you by email, delete suspicious emails. Financial operations that need to reach you still do so by regular mail and telephone. Only you should initiate email contact with your financial services.

Along with financial products and sage savings, credit, mortgage and home ownership counseling and advice, the credit union industry, just like others in the financial sector, is hard at work thwarting phishing and fraud.

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home!

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