Avoid Mortgage Crunch with a Credit Union

While traditional mortgage lenders struggle to recover from the subprime meltdown, credit unions are carrying on with business as usual.

When you need to get to the other side of a mountain, you can either climb it or go around. Right now, the conventional path over the mortgage mountain is cluttered with the rubble of the subprime landslide. While traditional mortgage lenders are weighted down with the fallout, many credit unions are sweeping a clear path for qualified mortgage borrowers.

Slowing demand in secondary market

At one time, the mortgage industry was fueled to phenomenal growth by hot demand in the secondary market, which purchases non-conforming loans from traditional mortgage lenders. This transaction functions as an investment for the buyer, and a replenishment of funds for the lender. When lenders have more funds, they can make more loans. Unfortunately, rising default rates in the subprime and Alt-A mortgage sectors have dampened secondary market demand. As a result, mortgage lenders don't have access to the level of funding they had previously. With less money to lend out, these firms must rethink their fees, business models, and underwriting standards.

Credit unions side-stepping mortgage fallout

It's common for credit unions to manage their mortgages in-house. They don't make money by selling the loans on the secondary market-they make it by collecting interest payments. Since credit unions have a limited supply of funding, their underwriting standards are usually pretty tight. They don't dabble much in unconventional and subprime lending-a conservative stance that's been a strength for credit unions. As a result, their losses on mortgages tend to be very low.

While the rest of the mortgage industry is struggling to right itself, credit unions are simply carrying on with business as usual. For this reason, some borrowers are finding it easier and less expensive to get their mortgages funded through a credit union.

If you don't belong to a credit union, find one that you can join. Memberships are usually offered to individuals in certain groups-for example, employees of a certain company, members of a church, or students enrolled at a particular school. Keep in mind that credit unions prefer well-qualified mortgage borrowers. They'll only take small risks on long-time members who have a documented history of accounts with the institution. Also, not all credit unions make first mortgage loans, so you should double check the services offered before joining.

A credit union membership may benefit you in other ways. They generally are not-for-profit member-owned institutions. This structure fosters a different culture than what you'd find with a profit-driven bank or mortgage lender: You're a voting member of the organization, not a faceless customer. Credit unions typically offer a large selection of banking services, too. Your membership may not only get you to the other side of the mortgage mountain, it may help you streamline the rest of your finances, as well.