Actors FCU New 3-1 Mortgage a Rate Security for Less Risk-Taking Members

NEW YORK – After offering just one type of mortgage product for the better part of a decade, Actors FCU is rolling out a new loan product it says gives members “greater budgetary security” without opening the credit union to reverse rate risk. Paul Cole, owner of Mortgage Department LLC, a subcontractor for Actors FCU which underwrites the credit union’s mortgages, described the CU new 3-1 product that debuts in June as a “hybrid loan product” and said it was in response to member demand. With the new product, the rate remains fixed for the first three years of the loan and then becomes a one year adjustable after the three-year lock period. The first adjustment cap can be a maximum of three points, and periodic caps can be a maximum of two points. Until now, Actors has only offered a 1-1 year adjustable priced mortgage loan. The lifetime cap for both loan products is six points above the starting rate. Cole said the primary reason Actors learned it was losing members’ mortgage dollars to other lenders was because it didn’t have a product that locked them into a rate for more than 12 months. “The 1-1 product didn’t give members the security they wanted, so this is in answer to their needs,” he said. “A lot of first time homebuyers say they want a 30-year fixed mortgage, but many first time homeowners don’t wind up staying in their home for that long. This is a way to give them a fixed rate 30 year loan that’s adapted to three years, We hope this will attract more borrowers,” Cole added. Actors FCU has more than $80 million in assets and 1,400 members. Its $40 million mortgage loan portfolio accounts for 87% of its total loan portfolio. The credit union’s field-of-membership includes anyone in the U.S. or overseas who works in the entertainment industry and is a member of any one of 57 different entertainment industry-related organizations. So which of Actors FCU’s members will the new 3-1 loan product appeal to? Cole says it will be those who can afford to pay extra on the principle but are more “strapped on income or squeamish about taking risks earlier in the loan cycle.” In contrast, members who can pay down on the principle aggressively and want immediate benefits will be attracted to the 1-1 loan, he said, because the adjusted rate is adjusted on the balance of the principle on the loan. Mira Ness, director of lending services for Actors described the New York housing market as “hot, hot, hot.” The bulk of the city’s housing is made up of co-ops and condominium resales, and Ness said there’s a huge shortage of available properties in the city – inventory is down 50% from last year, she said. “So our members have to be prequalified and be prepared to go to contract almost immediately,” she said. According to Cole, Actors FCU members who currently have a 1-1 mortgage loan with the credit union and want to refinance their loan with the 3-1 product will only be allowed to do so if it’s a cash out refi. He added that it’s the credit union’s policy not to refi its own mortgage loans unless it’s a cash out. “Rather than have members churning their own mortgages to get a starter rate for 12 months, we’d be continually lowering the starter rate. So we’d lose money and the member would also lose money because they wouldn’t recoup their closing costs but would wind up back where they started,” he explained, adding that if a member wants to refinance their Actors FCU mortgage and it’s not a refi, a credit union representative explains to the member why it’s not in their best interest to do so and why it’ against the credit union’s policy. “We realize we’ve probably lost some of our members’ refinance business because of this policy, but when you’re adjusting our rate for just a few points above our starting rate, there’s really no reason for a member to take their loan somewhere else,” said Cole. -