As a result of the subprime lending crisis, even borrowers with good credit are struggling to find lenders willing to give them mortgages. Those with less-than-stellar credit scores face even more difficult times.

But if borrowers look in unexpected places, their efforts can yield pleasant returns.

Take credit unions, for example. These institutions, which are run as nonprofit cooperatives, typically do not have enough money to market their mortgage offerings, and their mortgages are not offered through outside brokers. So consumers often overlook some highly useful alternatives that credit unions offer.

About 200 credit unions affiliated with the Credit Union National Association have offered a low-interest Home Loan Payment Relief mortgage since late 2005. The program is limited, with some exceptions, to borrowers with household incomes at or below their area’s median income.

In specific high-cost areas such as New York and northern New Jersey, credit unions will make loans to people whose incomes exceed the median. In the New York City area, for example, those earning 165 percent of the median household income of $70,900 can qualify, so the loans are available to households earning $116,985 or less.

The loans, available at seven New York credit unions and one each in New Jersey and Connecticut, carry initial interest rates 1 percentage point below those of mainstream lenders. Only credit union members may apply; joining usually requires a minimum deposit of $25 or so.

The payment-relief loans are available with both fixed and adjustable rates. The rate for the 30-year payment-relief mortgage earlier this month was 5.25 percent, with the rate increasing to 6.25 percent after three years, regardless of how high rates have climbed in the interim.

The adjustable-rate payment-relief loan works in a similar fashion. The introductory rate earlier this month stood at 5.25 percent; those who qualify for the mortgage will retain that rate for three years, when the rate can increase by one percentage point per year, depending on short-term interest rate fluctuations.

The adjustable-rate payment-relief loan has a lifetime interest rate cap five percentage points higher than the initial rate. More information, including a list of participating institutions, is online at www.cuna.org/initiatives/hlpr.

Bill Hampel, chief economist at the Credit Union National Association, said credit unions could make such loans because they were forsaking the profit that mainstream institutions make.

“Since credit unions are nonprofit cooperatives, they don’t have to pay federal income taxes or pay dividends to stockholders, so they can offer better deals,” Hampel said. “That’s also why they don’t have any incentive to talk someone into taking out a shaky loan.”

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/29/REGIKPH04U1.DTL