Credit Unions Offer Options for Bad-Credit Borrowers

by Joe Taylor Jr.
CMR Columnist

The news media have focused plenty of attention on predatory tactics used by some mortgage lenders, especially in California's subprime mortgage market. However, more than half of American homeowners fail to participate in a sound, reliable option for mortgages and home loans: credit unions.

Credit Unions a Good Option

Unlike banks and commercial lenders, which operate solely for the benefit of the bottom line, credit unions operate in the interest of their members, or shareholders. Everyone that deposits money in a credit union actively participates in the mortgages and the home loans of their fellow members.

While large banks in California and elsewhere might maintain stockpiles of cash or investments, credit unions funnel most of their deposits back into the community. In many cases, credit unions offer mortgages and home equity loans to members who would not otherwise qualify for similar home loans at other financial institutions. Furthermore, the community interest of the credit union often results in mortgage rates that are significantly lower than nearby retail banks.

Community Mission Opens Mortgages to Low Income Borrowers

A credit union's membership and mission statement affect its ability to work with subprime borrowers. Many older credit unions were formed around labor unions and employee membership organizations. These institutions often use the same credit thresholds as banks, since they want to reduce risk for members.

However, a growing number of credit unions have popped up in low-income areas, specifically to help jumpstart economic growth. Many of these credit unions actively encourage high-risk borrowers to apply for mortgages. Their desire to see their communities thrive outweighs the risk posed by borrowers with poor credit.

Even when underwriting high-risk mortgages, credit unions enjoy government protection similar to that of banks. Therefore, credit unions offer a secure way to put your savings to work for your community while also giving you an opportunity to save money on your next mortgage.

Sources
Credit Union National Association
National Credit Union Administration

About the Author
Joe Taylor Jr. coaches beginning mortgage brokers to provide better customer service and to understand creative financing opportunities.

© 2006 CMR. All rights reserved.