Michigan First CU, Lathrup Village, Mich., believes a growing number of credit-challenged borrowers are becoming good credit risks as they find new employment.
But to reach this group, MFCU said a credit union must be willing to reach into lower credit scores, and has introduced a first-mortgage product to do just that.
"The economy is showing signs of getting healthier," said Chris Maynard, VP of lending.
"Take members who lost their job at the height of the financial crisis. They may have a low credit score because they were forced to make some difficult decisions, and now are back on their feet. But their credit score has yet to catch up. These people are good risks. They have verifiable income and the capacity to pay. We believe it is a good move to give them a chance a little bit ahead of schedule."
Maynard said the CU began to see members stop in this summer who fit this financial profile, but MFCU could not make the mortgage loan due to low credit scores. As a result, Michigan First has introduced the Turning Point Home Loan that adjusts some of the CU's mortgage lending policies to give these borrowers credit.
MFCU's traditional mortgage FICO cutoff has ranged between 620 and 640. "By starting now at 580 we feel we can appeal to this new and growing segment of borrowers. We want to remove barriers to homeownership with members who have financial capacity."
One barrier is the traditional 20% downpayment. The Turning Point product requires a 10% downpayment, and there is no PMI. The home must be the buyer's primary residence. Seasoning, where downpayment money coming from sources such as stocks or a 401(k) and which must reside in an account untouched for 60 days, has been removed. "We feel that will speed up the process and help buyers not miss out on a home they want to buy."
Maynard said the credit union does not believe regulators will be overly concerned about the concessions it has made on the product, as Turning Point is risk-priced in the 5% to 6% APR range, for 10-, 15- and 20-year fixed-rate terms. The credit union's standard 30-year fixed-rate ranges from 3.5% to 4.25% based on credit score. MFCU will portfolio all Turing Point loans. Turning Point also offers a seven-year balloon.
Besides helping members and the credit union's slow loan growth, Turning Point will give the Detroit metro area a boost, said Maynard. "We continue to see a significant long-term decrease in homeownership in metro Detroit. The 2010 Census showed 20,000 fewer owner-occupied homes compared to ten years earlier. So many homes are vacant and Turning Point will help a lot more people get into a home."
