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Subprime Mortgage Refinance & Rescue

Credit Union :ASI
Assets :$300,700,000
Address :5508 Citrus Blvd. | Harahan, LA 70123
Start Date :July 2009
Open / Closed End :Closed

Loan Underwriting Qualifications :

  • Borrowers in danger of foreclosure as a result of unscrupulous subprime lenders
  • Many of these borrowers had no mortgages or very low mortgages prior to Katrina, but needed to rebuild post-Katrina and were sold high-priced adjustable rate mortgages (ARMs)

Rates, Fees, and Terms :

  • 30-year fixed rate mortgage
  • 6% APR

Target Market :

Those with subprime ARMs on the verge of losing their homes.

Marketing Strategy

Referrals received from social service and housing agencies.

Program Results/Statistics :

As of March 2010, 10 loans totaling $1,361,376.

Member Benefits

  • Lower fixed interest rate and lower monthly payments
  • One member saved over $700 per month under the refinance program

Additional Information :

ASI received a CDFI grant of $1 million for a loan loss reserve fund to make its Subprime Mortgage Refinance and Rescue loans. About a dozen members have been helped to date through the program. Sarah Taylor, Senior VP, tells the story of one member who had paid most of her mortgage off pre-Katrina, but needed money post-Katrina to rebuild and to help put her granddaughter through law school. She fell victim to an unscrupulous subprime lender who put her into an adjustable rate mortgage. When she heard about ASI’s program and arrived at the credit union, she was paying a rate of 24% APR on the loan and was about to lose her home. The credit union refinanced the home with a 6% fixed rate 30-year mortgage and saved her over $700 per month in payments! “That loan made us all feel the program was worth the effort,” says Taylor.

The credit union is about to launch a new program it is calling its “SAFE Mortgage Loan” which will allow renters to begin building equity in a home if they can demonstrate that they have been making on-time rental payments for the past three years equivalent to, or in excess of, the monthly mortgage payment and escrow for a home loan. Taylor points out that rental rates in New Orleans remain higher now than in pre-Katrina days. People might be able to manage the higher rental payments, but they cannot save any extra funds for a down payment on a home. The SAFE Mortgage is designed to help people become homeowners even if their debt to income ratios may be higher than those for traditional loans, as long as they have no late or missed payments in their history.

“The SAFE loan program is designed to reinforce positive behavior,” explains Taylor, “but it won’t penalize a person for negative behavior, except through lost opportunity.” The loan will be a 30 year loan with a four year adjustment period at the beginning, where the rate can decline ½ point per year, up to a maximum of two points for timely payments. If borrowers have been late, the rate stays the same; it does not increase. The starting rate will be slightly higher than what the credit union is charging for its traditional 30 year loans. Taylor said ASI is considering a $2 million pool to start, with mortgages averaging between $100,000 and $150,000. Members will be encouraged to take advantage of the credit union’s financial fitness program, but it won’t be compulsory.

Vendors/Systems/Technology Used

No special technology needed.