This credit union does not offer conventional mortgages. The credit union adjusts for the increased risk solely through the interest rate, with no opportunity for hidden costs in fees. When the subprime borrower has made timely payments for a year or two, the borrower often is encouraged to refinance with a conventional lender.
Self-Help Credit Union finds that reasonably priced subprime loans provide much needed access to credit and perform well without charging exorbitant fees.
Many credit unions, like Antioch Schools Federal Credit Union (ASFCU) in California, include these strategies in their loan policies. Loan officers at ASFCU are instructed to find ways to reduce the risk of lending to some subprime borrowers so that the credit union can make the loan. For example, the loan officer may recommend reducing the amount of the loan, or changing the term of the loan.
Another suggestion may be for the borrower to obtain a co-signer or to find additional collateral for the loan. The ASFCU also encourages its members to come back to the credit union each year to have their situation re-evaluated. Fannie Mae acts as the investor, buying the subprime loans from the credit unions.
The credit unions have the necessary funds to continue offering subprime loans to their members. WSECU calls its loan program the "Credit Builder" loan. When a borrower has less than perfect credit, he or she may qualify for the Credit Builder loan. However, when a level 2 or 3 borrower exhibits an improved payment history, by making 24 consecutive on time payments, the subprime interest rate will be reduced by one percent. When level one borrowers exhibit improved credit histories, they are encouraged to refinance at the prime rate. Qualifying criteria must also exist for small dollar loans Iowa subprime borrowers to ensure that the borrower has the ability to repay the loan. Credit unions recognize that some consumers should not have mortgage loans until they are sufficiently prepared to take on online loans Nebraska the commitment of home ownership. Often first time home buyers are not prepared for the unexpected costs incurred from property taxes, home maintenance, home repairs, and furnishing a new home. It is important that any small dollar loans Iowa new home owner have adequate savings on hand for unexpected costs and emergencies. Even if a borrower has a sufficient monthly income to make a mortgage payment, he or she could still be a poor candidate for a mortgage loan. If this borrower has no reserves, has demonstrated no pattern of savings, has no retirement plan nor has invested funds in assets that will appreciate, he or she may have difficulty making monthly mortgage payments while keeping up with the additional expenses incurred with home ownership. Credit unions support the inclusion of life-of-the-loan financial assistance for subprime borrowers to ensure that they can meet their monthly financial obligations. A similar argument can be made for refinance loans. Some home owners with substantial equity may have adequate loan-to-value ratios to qualify for a refinance loan but would not benefit from the additional debt.
These consumers are often encouraged to refinance their mortgage loans to pay off credit card and other unsecured debts. The credit union is developing foreclosure alternatives to keep people in their homes. Self-Help Credit Union is also helping to establish a non-profit law center to provide legal services to predatory lending victims. Credit unions believe that by educating our young people in the area of personal finance they will learn to make sound financial decisions and choose not to use high cost or predatory lenders. CUNA has partnered with the National Endowment for Financial Education (NEFE) to expand financial education among teens throughout America.
Through this partnership CUNA and NEFE provide an educational curriculum and materials to high schools across the country to combat financial illiteracy. In addition to providing the necessary materials, credit unions actively participate in the classrooms. During the 1999-2000 school year credit unions conducted over 5,000 financial education presentations reaching almost 130,000 students nationwide. Currently, only a handful of states have either a mandate for personal finance education in schools or include personal finance concepts in state assessment tests.
These numbers are expected to increase over the next few years and credit unions plan to continue providing the support necessary to meet these educational objectives. They may know that they have missed a payment a few times but they often do not understand the many other factors that effect their credit rating. Some credit unions try to build credit education into the loan process - sometimes by offering incentives such as the rate reduction program described previously in this booklet. Since then, other states, local governments, and Congress, have introduced legislation, regulations and ordinances that would prohibit mortgage lending practices that are intentionally structured to take advantage of borrowers. State small dollar loans Iowa Government: During the 2000 state legislative sessions, at least ten states considered legislation to address predatory lending practices. Illinois, Massachusetts, and New York have passed regulations that will curb several lending practices associated with high cost loans. Additionally, the District of Columbia passed a law to prohibit financial institutions from using predatory lending practices. County Government: DeKalb County, Georgia, passed a county ordinance that prohibits county agencies from doing business with entities that are defined as participating in predatory lending practices. Federal Government: Several members of Congress have introduced bills to curb predatory lending practices. The Federal Reserve Board recently issued a proposal which will define a larger number of mortgages as "high cost" and consequently subject them to additional disclosure and reporting requirements. Credit unions joined more than 160 consumer groups and advocates in signing a letter to Federal Reserve Chairman Greenspan urging the agency to take action against predatory lending. GLOSSARY Balloon payment: A scheduled final payment that is more than twice as large as the average of earlier scheduled monthly payments.