Although Halloween is just around the corner, many of you have been spooked recently by something quite different than ghouls and goblins. By now, you have likely heard about the global home mortgage “crisis”. Rising foreclosure rates, due in large part to subprime lending (granting loans to riskier borrowers at higher than market interest rates), have claimed many victims; among them include American homeowners, major mortgage lenders, hedge funds, marginal private banks, and individual investors. As if this were not enough, some estimate that the worst is yet to come. An estimated 2.4 million adjustable rate mortgages will upwardly adjust in the next twelve months, tightening their grip on borrowers who only marginally qualified for the introductory “teaser” rates to begin with.
Members Credit Union’s mortgage loan partner American Home Mortgage (AHM), the lending giant holding 2% of the entire U.S. mortgage business, was not exempt from these struggles. While AHM was not in the subprime lending business, they did deal with what is called “Alt-A” paper. Alt-A paper is really just a loan made to a borrower who qualifies for an A-rating, and likewise the market rate, but does so based on alternative methods such as inadequate income documentation, higher loan-to-value and debt-to income ratios. Growing uneasiness about subprime and Alt-A loans by institutional investors of mortgage-backed securities caused a credit crunch that even AHM could not escape. They filed for bankruptcy protection this summer due to insolvency.
Thankfully, the impact on Members Credit Union members has been minimal. We do not carry any subprime, or even Alt-A, loans on our books. All loans made through our mortgage-lending partner were serviced and held by American Home Mortgage. The few members who had approved, yet non-funded, AHM loans at the time of the bankruptcy filing were quickly paired with lenders who could complete the process. We were able to help all of these members.
This situation has also allowed us to partner with a terrific mortgage loan partner, WR Starkey. As part of our agreement with this organization, they agreed to retain the services of former American Home Mortgage employees Nicole Carson, Ashley McKenzie-Sharpe, and Brian Whitesell. So, the faces will be the same, the friendly service will be the same, and our dedication to providing members with low-cost mortgage services has never been stronger.
As a not-for-profit financial cooperative, our mission is to promote thrift among our members. This means finding ways to help you save money, earn money, and avoid being ripped off. With sound financial planning, Members Credit Union and our members are safe from any so-called crisis – all treats, no tricks.