The Credit Union HLPR Mortgage

Fact Sheet on The Credit Union HLPR* Mortgage

* Home Loan Payment Relief (pronounced “helper”)

A “no gimmicks” low-rate mortgage for first-time homebuyers from their credit union.

Reasons for the Program

• With rising home prices and monthly payments, many first-time and modest means buyers become frozen out of the market.
• Although credit unions can’t produce more affordable housing, they can reduce monthly payments, enabling more borrowers to qualify.
• Serving members of modest means is an integral part of credit unions’ mission.

Basics of the Program

Participating credit unions offer to qualifying members one or more of the following mortgage loan options:

• A three-year adjustable rate mortgage at one percentage point BELOW the national average for such loans, to qualifying borrowers. After three years, the rate will adjust annually to market rates, with rate adjustments capped at 1% per year, and 5% over the life of the loan.
• A 30-year fixed-rate HLPR loan that features a 3-year 1% buydown. Credit unions may use either their own standard 30-year mortgage rate, or a national 30-year rate that CUNA will publish weekly similar to the national average 3/1 ARM rate.
• 5/1 and 7/1 ARMS – Longer-term ARMs with a 0.50% buydown based off their standard 5/1 and 7/1 ARMS.
• A 40-year term loan.

Each credit union will grant and fund the loans to its own members.

Credit unions will not make up for the lower rate with higher fees, points or other gimmicks. In fact, credit unions will be encouraged to seek and pass on to members reductions in closing costs and private mortgage insurance costs.

Underwriting Criteria

• Each credit union will use its own underwriting criteria, with the exception of the following two standards:
• Required down payments will be no more than 3%, and gifts or grants will be permitted.
• Credit unions will permit backend ratios (mortgage principle and interest, escrow and other debt payments) of at least 42% of income.

Borrower Eligibility

• Borrower’s household income will be restricted to 100% or less of the area median income, except for certain “high-cost” areas designated by Freddie Mac and Fannie Mae based on HUD data.
• HLPR loans will be targeted to first-time homebuyers purchasing an owner occupied principal residence. Credit unions at their option may extend the loans to non-first-time buyers, subject to the income limitation.

Benefits of the Program to Members

• The program will lower mortgage costs and increase eligibility to credit union members of modest means who are contemplating buying a house. This will increase members’ opportunities to purchase a home and begin to build wealth as the equity in their homes accumulates.
• These benefits are driven both by the lower interest rate and the higher permitted “back-end” payment ratio. The benefits could be realized in a number of ways:
• A lower monthly payment for any given loan size.
• Enabling a member to qualify for a larger mortgage for a given income level. The program will allow for approximately a 25% increase in loan size for a given level of household income.
• Lowering the income level necessary to qualify for a given mortgage size. The program will allow for approximately a 25% reduction in income necessary to qualify for a given loan size.
• By establishing mortgage relationships with credit unions, new members will be introduced to a variety of other services from a credit union.

Benefits of the Program to Credit Unions

• This program helps to underscore credit unions’ role as serving consumers of modest means within their membership, while also tracking credit union service in this area.
• A credit union will be able to participate in a powerful national program by making loans to its own members using its own underwriting criteria.
• This is a concrete program that further helps credit unions fulfill their mission of serving all their members, including those of modest means.

Mechanics of the Program

• At the beginning of each month, the Credit Union National Association (CUNA) will announce the loan rate for the month based on the national average on 3/1 ARMs from all lenders for the previous month. That will be the HLPR loan rate for month. In the event of rapid changes in market rates, weekly updates in the rate will be announced for the remainder of the month, as necessary.
• At the end of each month, credit unions will report on a password protected, secure website the volume of their HLPR loan activity in order to help CUNA track the program’s progress.
• After the program has been in operation for several months, CUNA will consult with participating credit unions about continuing the program on a regular, annual basis, with modifications as necessary.

Additional Considerations

• Even with the HUD high-cost overrides, there may be some credit unions in markets that just do not have sufficient “affordable” housing even with the HLPR program. Other credit unions are likely to have a larger demand for the program than they can fund under the program. We are looking into ways for credit unions of the first type to participate in or buy loans from credit unions of the second type.
• Some credit unions already have effective programs of specialized lending to first-time buyers or members of modest means that may not involve a 1% reduction in loan rate. On a case-by-case basis we propose to evaluate these programs. If the benefits to members are similar in magnitude to those of the HLPR program, we expect to be able to count the credit union’s program toward the national total.

Media contacts at CUNA for more information about the national HLPR program:

• Mark Wolff, CUNA Communications, 202-508-6764 or mwolff@cuna.coop
• Pat Keefe, CUNA Communications, 202-508-6765 or pkeefe@cuna.coop

Copyright © 2008 - Credit Union National Association, Inc.