Silicon Valley Innovates To Meet Loan Needs

KeyPoint Credit Union offers a range of loan products to help members enter the housing market.

 
 

In 1979, AEA Credit Union was created to serve employees of the American Electronics Association and other workers in what would become known as Silicon Valley. In 2004, it expanded its field of membership to serve more of the local community and booming high-tech industries and changed its name to KeyPoint Credit Union.

Now, with more than 54,000 members, KeyPoint Credit Union ($1.2B, Santa Clara, CA) leverages its demographics, board talent, history, and investment strategy to produce outstanding lending results via innovative, responsive products.

Nowhere is that responsiveness more evident than in mortgage lending. KeyPoint serves some of the priciest areas in the country, including San Mateo, Santa Clara, and Alameda counties in California.

According to CoreLogic, median home prices in these markets as of May 2017 increased:

  • San Mateo: 17.8% year-over-year to more than $1.2 million.
  • Santa Clara: 7.4% to more than $940,000.
  • Alameda: 3.1% to $732,000.

By comparison, the national median home price is approximately $240,000.

Adjusting to these conditions has given Silicon Valley credit unions a mortgage portfolio that differs from much of the rest of America.

 

 

For example, first mortgages in second quarter 2017 accounted for 61.6% of the loan portfolio at the 47 credit unions based in Silicon Valley. For credit unions nationally, first mortgages accounted for 41.4%. For KeyPoint, they accounted for 59.7%.

Moreover, the Silicon Valley credit unions held 51.5% of first mortgages in fixed-rate loans and 45.9% in balloon/hybrid loans. The industry average is 54.5% in fixed-rate loans and 29.0% in balloon/hybrid loans. KeyPoint, meanwhile, held 13.2% of its first mortgages in fixed-rate loans and 80.5% in balloon/hybrid loans.

Below is a table that breaks down the first mortgage portfolio for KeyPoint, all 47 Silicon Valley credit unions, and the U.S. national credit union average.

For perspective, fixed-rate first mortgage loans are fully amortizing, with constant interest rates and payments throughout the life of the loan. Adjustable rate products have an interest rate that changes over the course of the loan.

A balloon loan is a first-mortgage loan that does not fully amortize over the duration of the loan. Instead, it combines smaller monthly payments with a large balloon payment at the end.

Finally, a hybrid loan is a mix between a fixed and an adjustable rate loan. Hybrids start with a fixed rate for a specified period and then convert to an adjustable rate for the remaining life of the loan. These loan types allow for more flexible financing options for the member and generate income at lower risk for the credit union.

MORTGAGE LOAN DISTRIBUTION

FOR U.S. CREDIT UNIONS | DATA AS OF 06.30.17
© Callahan & Associates | CreditUnions.com
  KeyPoint Credit Union Silicon Valley Credit Unions U.S. Credit Unions
1st Mort. Fixed Rate > 15 Years 8.3% 42.3% 31.7%
1st Mort. Fixed Rate < 15 Years 4.9% 9.2% 22.8%
Balloon/Hybrid > 5 Years 31.0% 26.8% 14.3%
Balloon/Hybrid < 5 Years 49.5% 19.1% 14.7%
Other Fixed Mort. 0.0% 0.0% 0.5%
Adj. Rate Mort. < 1 Year 6.3% 1.3% 2.5%
Adj. Rate Mort. > 1 Year 0.0% 1.3% 13.5%

Source: Callahan & Associates

Along with hybrid loans, KeyPoint also offers its "All In One Loan" to provide additional flexibility and service.

According to Marsha Berlinski, the credit union’s vice president of real estate lending and loan servicing, the program merges a first-lien HELOC with a checking account. Deposits in the account apply toward the HELOC every night, which decreases the loan balance and lowers interest paid on the loan. The deposit funds are still available for everyday use and sweep between accounts.

The "All In One Loan" helps members build equity faster and pay off a 30-year loan in as little as seven years.

Such flexible financing options that respond to market conditions and member demographics make it possible for more KeyPoint members to buy a home in Silicon Valley.

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Aug. 9, 2017


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