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Regional Spotlight: Is There a Solution for Foreclosures? Credit Unions Say Yes

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RISMEDIA, July 2, 2007?As the number of foreclosures continue to rise at alarming rates, Wisconsin credit unions hope that this trend makes prospective homeowners think twice before closing on a home loan.

As of the end of May, it has been reported that Wisconsin has recorded more than 7,697 foreclosures in 2007 — a 21% increase over last year at this time — and Brett Thompson, president & CEO of The Wisconsin Credit Union League, attributes much of this trend to lenders who qualify borrowers into homes that they struggle to afford, which often results in them losing their home and damaging their credit standings.

“People at lower income levels or with less-than-perfect credit find that their borrowing options are limited by for-profit lenders and some end up turning to gimmicky, subprime mortgages,” said Thompson, whose trade association serves more than 260 of the state’s not-for-profit financial institutions. “Their dream of owning a home quickly becomes a nightmare when eventual hikes in interest rates leave them unable to afford monthly payments.”

Many good credit borrowers have also been lured to subprime lenders?who aren’t compelled by law to steer them to more traditional lenders who could offer them better rates.

“With so many choices in the marketplace, it’s important for consumers to understand the role not-for-profit lenders like credit unions can play in helping them obtain an affordable mortgage,” noted Thompson. “Credit unions are going to look at what’s in their members’ best interest and structure home loans accordingly.”

One such service Wisconsin credit unions have been providing is the Home Loan Payment Relief (HLPR, pronounced “helper”) Program, which makes below- market-rate mortgages available to first-time home buyers with household incomes at or below the median in their market.

The HLPR loan is a three-year adjustable-rate mortgage (ARM), for qualifying borrowers, at one percentage point below the national average. The required down payment is no more than three percent, and borrowers may use gifts or grants to make the down payment. After three years, credit unions adjust the rate annually to market rates and cap adjustments at one percentage point a year and five percentage points over the life of the loan. Because of the interest rate caps built into the program, members won’t get in over their heads.

“These factors all work to minimize future payment shocks to the borrower,” noted Thompson. “Increasing the likelihood that his or her family can continue to afford to stay in their home.”????

Wisconsin credit unions have committed more than $30 million dollars to subsidize the low-rate HLPR Program.? Aside from HLPR, credit unions around the state offer other mortgage programs that provide low- and middle-income members with opportunities to
purchase a home and begin to build wealth as the equity in their homes accumulates.

Wisconsin credit unions are developing these programs as part of their REAL Solutions initiative, which extends credit union services to people in need, regardless of whether the credit union can profit by doing so. The purpose of not-for-profit credit unions is to serve members, not make profits.

“Credit unions can’t produce more affordable housing, but we can reduce monthly payments, enabling more borrowers to qualify,” said Thompson. “As member-owned cooperatives, credit unions try to not only get people into a home, but keep them there as well.”????

For more information, visit http://www.creditunion.coop.

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