In the interest of full disclosure, STCU would like to announce that, in the midst of the national mortgage crisis, your credit union has had one bad home loan.
Uno. Eins. Ichi. One.
We should have seen it coming. The sudden shift in the economy. The inability of that one borrower to repay the loan.
That's not to say we don't help members with credit challenges. We have 3,300 great mortgage loans worth $350 million on our books. In one month in 2006, we approved $5 million in home loans to low- to moderate-income first-time homebuyers, many of whom chose adjustable-rate loans with no money down and a reduced interest rate.
And still, just one bad loan. Yep, we believe we can weather the storm.
Wish we could say the same for the rest of the country. U.S. mortgage companies and banks are choking on an estimated $500 billion in questionable loans nationwide, many of which are sub-prime - high-risk loans made to people with poor credit or the inability to repay.
Federal Reserve Chairman Ben Bernanke says there are 7.5 million sub-prime home loans outstanding. Huge numbers of these adjustable-rate loans are about to leap from their original teaser rates to higher rates that some people will not be able to afford, triggering foreclosures and a return to apartment life for many.
What does that mean for you? A possible slowdown or drop in property values. Maybe a need to refinance. More room in your mailbox as mortgage companies stop offering teaser rates. A decline in new home construction. Lower apartment vacancy rates. Less money for speculators.
In other words, we're back to reality.
"The days of buying a house for an investment and flipping it are probably gone," Daniel Mica, president of the Credit Union National Association told Bloomberg News. "The days of home values going up 10 to 20 percent a year are gone."
If you've got a mortgage at another company - and your loan rate is schedule to go up in the near future - contact STCU about refinancing your loan. We offer several options for "rescuing" your loan from the mortgage crisis.
Imagine requiring members to have a job or other predictable source of income to pay back a home loan. How could we be so stern?
A better question might be how could we not? Remember, your credit union is a cooperative of members who pool their savings to make loans to other members at a reasonable rate of return. We're not a bank selling stock so we can throw the dice with someone else's money. When STCU makes a home loan, it's with your money.
Sub-prime mortgages? STCU avoids them. Adjustable-rate mortgages? They're great for some members, but so are fixed-rate loans.
"Historically, fixed rates are still very good," says Vicki Steen, STCU's real estate manager. "It doesn't make sense for most people to get an adjustable rate when you can get a fixed rate with no prepayment penalty."
If you've got a mortgage at another company - and your loan rate is schedule to go up in the near future - contact STCU about refinancing your loan. We offer several options for "rescuing" your loan from the mortgage crisis.
STCU's approach is already paying dividends. At a time when the nation focuses on the sub-prime crisis, STCU expects to generate $79 million in home loans in 2007. That will be the second-best effort in our 74-year history.
"We had a one-loan 'crisis,'" Steen says. "It was all over in less than an hour."
With interest rates historically low for many years, demand for homes boomed. Property values accelerated and lenders relaxed lending standards. They justified loans to borrowers with poor credit and insufficient income, reasoning that the borrower could get a home equity loan against the rising property value if they ever got in financial trouble.
To boost market share, lenders aggressively marketed adjustable-rate mortgages, or ARMs, with low, teaser rates that would typically rise two or three years later. Some of these loans were made to people with poor credit - sub-prime borrowers - who were not required to verify the ability to repay their loan. They needed only to pay interest on the loan to qualify.
Many borrowers did not understand that their loan payments could go up even if property values didn't. Analysts estimated that at least $300 billion in sub-prime ARMs - representing millions of homes - will be "reset" in the coming year at higher rates. Homeowners who cannot make the higher payments could lose their home.
As an STCU member, you have the protection and support of our 20 real estate professionals behind you. We do conventional, construction, and VA/FHA loans. The majority of our loans are serviced by STCU, so you're dealing with people you know as you make payments over the years.
Here are four steps to success when preparing to buy your next home:
