Credit Union Mortgage Association (CUMA) has closed its first HarmonyLoan, a mortgage that allows consumers to reset their interest rate with the click of a mouse, foregoing additional closing costs and lengthy processing.
"It puts members in control of their mortgage loan," said Scott Toler, CEO of CUMA, a mortgage CUSO (credit union service organization) owned by 46 credit unions spread across Maryland, Pennsylvania and the District of Columbia.
Consumers must wait six months after their initial closing before performing a rate reset, and can adjust their rate every 120 days as long as they have the loan. While greater convenience is the advantage for consumers, Toler said credit unions benefit by keeping members at the CU when they refinance, keeping the loan on the CU's books, and preventing servicing from running off. CUMA provides the servicing through a subcontracting agreement.
When members apply for a HarmonyLoan they go through a standard closing and credit check, pay a 1% origination fee plus closing costs. But Toler said the rate is about 25 basis points above market, and when members reset, the rate they receive is about 25 basis points above the going rate. CUMA currently offers a 15-year fixed (4% APR), 5/1 ARM (3.5%), 7/1 ARM (3.78%), and 10/1 ARM (4.5%).
Toler explained that when a loan is reset, the payoff date remains the same, but on an ARM, the fixed-rate period is extended. "For instance, a member has a five-year ARM with two years remaining on the fixed-rate period when resetting. He gets a new five-year fixed-rate period after resetting."
CUMA is partnering with the Vienna, Va.-based Mortgage Harmony Corp., which trademarked this method of rate resetting, on the offering, Toler said. The $220-million Agriculture FCU, Washington, is the first CU to close a HarmonyLoan, which is available to the association's credit union members, based primarily in the Greater Washington, D.C. area.
