While Banks and Savings and Loan institutions nationwide have been busy lining up to the public trough for bailout funds, another institution has been busy writing home mortgages, your neighborhood credit union! Surprised? Don’t be, since credit unions have been writing home mortgages for years- they just have a different business model than the big boys.
Credit unions are non-profits that exist to make money, just not profit. Their basic business plan is simple: credit unions receive deposits, and use that money to make loans. They then charge more on those loans than is paid on deposits. Ta-Da! A business that thrives. And of course, they are very conservative when it comes to their lending standards. Subprime and option ARM mortgages have never been in their portfolios, nor did they sell and repackage loans as investments on the secondary market.
What credit unions did do is loan only to credit worthy members on mortgages that truly were not greater than what the member could afford. They also did this without creating fraudulent applications and wildly inflated appraisals-just like banks used to do in the old days!
Joining a credit union is generally based on membership requirements such as living in a certain area, working for a particular employer or industry, or belonging to a certain group. The largest advantage of credit union membership is that loan rates are lower and returns are greater on savings and CD’s than usually found at banks. Unlike banks, credit unions are member owned with excess earnings either passed back to members in the form of lower rates, greater earnings, or shares paid.
They hold most loans to maturity, and fewer than 1% of credit union mortgages are 60 or more days late according to the Credit Union National Administration (CUNA). While their mortgage business is a fraction of that of other mortgage lenders, credit union originations increased 10% in the first 6 months of 2008 (according to CUNA), while mainstream lender originations dropped 18% during the same period as reported by the Mortgage Bankers Assn.
Not surprising, with car sales down and the difficulty dealers are having arranging financing, especially for the used car market, credit unions are more than willing to once again step up to the plate to assist. As a result, credit union membership is growing by leaps and bounds, all thanks to sound business practices.
