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Mortgages

The Appeal of Credit Union Mortgages

Credit...The New York Times

More than 100 million Americans are members of credit unions, and not just because they want inexpensive checking. These nonprofit lenders are increasingly winning over borrowers with low-cost mortgages and programs aimed at first-time home buyers.

From 2005 to 2014, credit unions grew their share of the mortgage market to 8.3 percent from 1.9 percent of all originations, according to Bill Hampel, the chief economist and chief policy officer for the Credit Union National Association. They picked up a lot of business during the housing crisis, when the secondary market for mortgage loans collapsed. Because member-owned credit unions hold most of their loans in portfolio, they were able to keep on lending when the big banks pulled back.

State Employees’ Credit Union of Raleigh, N.C., one of the country’s largest credit unions with nearly 2 million members, had a mortgage portfolio totaling $8.3 billion in 2005. At the end of last year, the portfolio had swelled to almost $14 billion, according to Stacie Walker, the senior vice president for loan origination services.

Its first-time buyer program is an attractive draw: 100 percent financing up to $400,000, no private mortgage insurance, and the option to borrow an additional $2,000 to help with closing costs.

Other big credit unions, like Navy Federal and Pentagon Federal, offer aggressive first-time buyer programs. But smaller institutions are also building their purchase loan business, often with flexible adjustable rate mortgage products, or ARMs.

“The 5/5 ARM is making a big impact for us,” said Don Genevie, the senior vice president for real estate and business lending at Grow Financial Federal Credit Union of Tampa, Fla. “We weren’t the first to come up with it, but we were one of the first to jump on the bandwagon with it.”

The interest rate on the 5/5, a popular product for many credit unions, is lower than on a 30-year fixed (at Grow, around 3 percent vs. 4.25, as of early July). Instead of adjusting annually after five years (as with a 5/1 ARM), it adjusts once every five years. It cannot adjust more than two percentage points at a time, up to a maximum of five percentage points throughout the loan period. The product is also available for jumbo loans, above $417,000.

Grow Financial’s average monthly loan volume for all mortgage types is up about 40 percent so far this year to $14.5 million, compared with $10 million last year, Mr. Genevie said.

Joseph Wiley, the director of loan acquisition for OwnersChoice Funding, which originates and services mortgages for around 200 credit unions, mainly in New York, said, “Credit unions are doing a better job of reaching out to their members and letting them know that they’re there for purchase mortgages. And they’re reaching out to Realtors, realizing that a lot of the purchase business is controlled by them.”

First mortgage originations by New York credit unions were up about 50 percent (to $1.4 billion) during the first quarter compared with the same period last year, according to the New York Credit Union Association. Credit union memberships in New York crossed the five million threshold last year.

Credit unions appeal to first-time buyers with the standard low-down-payment programs backed by the Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture, but they also give members “added value” by virtue of being portfolio lenders, Mr. Wiley said. “They can take a look at those borrowers who don’t fit in the Fannie Mae standard underwriting box,” he said, “and on a loan-by-loan basis, decide whether this is a loan we should be making.”

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A version of this article appears in print on  , Section RE, Page 13 of the New York edition with the headline: The Appeal of Credit Unions . Order Reprints | Today’s Paper | Subscribe

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