Credit unions have a different, perhaps better, approach to mortgages

Hands holding a house

Credit unions make home loans a little differently than other lenders, and they must be doing something right.

The first mortgage delinquency rate for credit unions is just over 2%, compared to 13% for all lenders.

North Carolina State Employees' Credit Union is a typical credit union -- its foreclosure rate is well below the national foreclosure rate.

SECU charges all members the same interest rate and favors a 2-year, adjustable-rate loan.

That means any of its members whose homes are underwater aren’t locked into paying a 5% or 6% interest rate because they can’t refinance a fixed-rate loan.

Their mortgage rates came down when overall rates fell.

That’s helped avoid defaults.

(Of course, as interest rates rise, the rates on these mortgages will rise, too.)

The other reason for SECU’s low foreclosure rate: It offers in-person financial counseling. When financial hardships happen, SECU senior staffers do face-to-face counseling with the member borrower to develop a workout plan.

When it makes loans, SECU doesn’t rely only on lending models based on risk and credit scores. It also uses salaried loan officers who stay involved in servicing and collecting on the loans, and it keeps ARMs in its portfolio rather than selling them to an investor.

"Keeping mortgage loans on our books means SECU is extremely interested in assuring that the loan is appropriate for the member," says Spencer Scarboro, SECU's senior vice president of loan originations. "We think it's much better to focus on the character of our members and their ability to repay a loan than to just rely on a credit score to make that determination."

Granted, in the current market, lending standards are so tight that you’re more likely to have a hard time getting a loan than you are to get a loan that’s hard to repay.

But if you want a little extra reassurance that you really can afford the loan you’re considering, get the nod from a credit union.

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