A credit score of more than 720, equity in a home, and less than $150,000 left to pay on the mortgage doesn’t sound like a recipe for refinancing. But the economy has changed the rules, and people are looking for ways to save. One Iowa credit union is translating the economics of today (and the numbers ten and four) into a chance to help members.
Collins Community Credit Union ($602M, Cedar Rapids, IA) launched a new program in September. Called 10 and Done, the program initially allowed qualified borrowers to refinance their existing mortgage into a 10-year loan at 4%. Now, the rate is at 4.3%. The maximum value of the loan is $150,000.
“It’s a relationship-builder for us,” says Richard Samek, assistant vice president and consumer lending manager at Collins. Aside from the rate reduction and shorter term, the loan is also cost-free for the borrower, which makes it even more attractive.
The average 10 and Done participant has a few common characteristics. Participants generally don’t have much time left on their old mortgage. They have high credit scores (most in the high 700s and many in the 800s). They have equity in their home. They can afford an accelerated payment schedule. They tend to have an existing interest rate between 4.5% and 5.5%. Fundamentally, the borrowers want to save money or remove the loan from their personal books. Many borrowers also see the local servicing as a significant boon.
For the credit union, the loans represent a welcome addition to its home equity portfolio. They are low-risk because of borrower quality, and the investment is a short-term one. The credit union keeps the loan in its portfolio, which reduces underwriting, Samek says. Plus, some 10 and Done borrowers have brought their auto loans to Collins for refinancing, too.
Over the past year, Collins’ home equity portfolio had been on a downward trend. But when 10 and Done launched in September, an uptick followed. In October 2010, outstanding balances jumped $2.2 million. Since the program started, the credit union has completed 267 loans totaling $17.4 million.
What’s just as encouraging is a story about a couple that benefited from the program.
The husband had been out of work for some time. The wife had a steady income, but their economic situation was less than sturdy. As quality borrowers, the couple was able to have all of their debt pulled together into a 10 and Done. The move reduced the couple’s debt-to-income ratio to 33%.
What Collins’ program represents is the spirit of innovation and community that drives the credit union industry. By minimizing risk for the credit union and maximizing savings for members, the 10 and Done program serves as a solid example of how credit unions are working to reinvigorate the economy.