NEW YORK – March 10, 2014 – Buyers shunned by major lenders may have better luck checking with their local credit union, some of which have again started offering no-interest mortgage loans.
It’s not a high-risk venture that could lead to another real estate bubble, according to Bob Dorsa, president of the American Credit Union Mortgage Association. “(Credit unions) never got into the negative-amortization loans and any of those goofy teaser rates,” he said in a New York Times article. “They are interested in what’s in the best interest of their members.” That “best interest” includes any loans considered high risk.
Many of the new qualified mortgage (QM) rules impact loans that a bank hopes to sell to Fannie Mae or Freddie Mac. They don’t apply to loans a bank plans to keep in its own portfolio. Since credit unions tend to retain more of their mortgages, they have more flexibility in what they offer.
Since each credit union has its own policies and can change them at anytime, buyers should check what’s currently being offered. But the New York Times cites the following examples:
• Pentagon Federal Credit Union in Alexandria, Va., rolled out a 15/15 adjustable rate mortgage (ARM). Buyers opting for the loan get a lower interest rate than they would with the more common 30-year loan, but it can adjust later – though only once. If an owner is in the house for 15 years, the rate will adjust, but stay at that new level for the remainder the loan’s term.
“This is an excellent opportunity for anybody who doesn’t think they’re going to be in the same house for 15 years,” says Craig Olson, Pentagon’s senior vice president.
The loan qualifies for purchases up to $750,000, and the 15-year adjustment cannot rise higher than 6 percent.
• Pentagon Federal also has a 5/5 ARM – but buyers can opt for an initial rate 1/4-percent higher rate and pick the times they want the rate to reset.
• Redwood Credit Union in California has a 5/5 ARM that adjusts only once every five years. The rates are generally better than a longer-term ARM – and owners have peace of mind for at least a five-year interval between possible changes. The lender says it appeals to a buyer who expects to own the home less than 30 years.
• Navy Federal, with more than 4.5 million members, has rolled out an interest-only loan – a buyer’s monthly payments include only the interest without any of the principal – which has not been common since the mortgage meltdown. Buyers must generally have the ability to pay the full principal and interest payment, however, and, to qualify, have higher incomes than most other buyers.
• Navy Federal also has a “Homebuyer’s Choice Program” that offers buyers 100 percent financing.
Source: The New York Times, Feb. 27, 2014, Lisa Prevost
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