KALAMAZOO, Mich.-Consumers CU here has begun offering its own twist on the government's HARP 2.0, with a program that has now processed about 30 loans representing more than $5 million.

Dubbed the "High Five Refi," Mortgage Manager John Murphy explained that the name was chosen over HARP 2.0 because "we wanted to come up with a tagline that signified success and signified more of an achievement of a pretty difficult goal. The federal government has done an absolutely lousy job of getting this program out and has really relied on lenders...We wanted to come out with our own program that mirrors HARP 2.0, and so far it works pretty well."

The guidelines are identical to the Fannie/Freddie program, with no maximum combined LTV, no FHA or VA loans, and a first mortgage that must have originated prior to June 1, 2009. The $385-million, 45,000-member credit union is accepting scores down to the mid-600s and offering a rate of 4.25% for all approved loans. The primary credit driver for approvals, said Murphy, is whether or not applicants have been making payments for 12 consecutive months. "If they've done that, they're likely to get approved into the low 600s, with no penalties from Fannie Mae."

The credit union, which does not do risk-based pricing, is also not requiring appraisals and is waiving its lender fees (including origination, processing and underwriting fees) on these loans, which Murphy said "is a big deal, because we don't want to keep adding money into a negative equity situation."

Able To Absorb Rate

"Our fees add up to half to three-quarters of a point, and we waive that as well, frankly because the margins on this program are pretty healthy, so we're able to absorb our fees and still deliver a rate that's pretty close to market," said Murphy.

Consumers CU is a direct seller to Fannie Mae and retains all servicing on the loans after sale. In instances where applicants do not qualify for the High Five Refi, Murphy said the CU seeks to enter into a modification.

"If they're upside down now but have been making payments, we look at those on an individual basis, and if there's a hardship we try to address it, But examiners look pretty carefully at putting new loans on the books over 100%, so in a lot of respects in our portfolio our hands are a bit tied. That's a bit of a frustration, but it might get solved with HARP 3 if that comes out within the next 60-90 days."

New loan amounts may also include financed closing costs, but Murphy said that in most cases for Michigan homeowners, that isn't as big an issue because they are better able to absorb the closing costs than homeowners in places such as the sand states, which saw LTVs as high as 300%.

The average LTV Consumers sees on High Five loans is around 110%. About 35% of homeowners in the Great Lakes State are underwater, said Murphy. The average mortgage at Consumers Credit Union runs around $130,000, but Murphy said that High Five loans are running between $150,000 and $175,000. Mortgage insurance is not required, regardless of LTV, if there was no mortgage insurance on the original loan. Existing mortgage insurance policies transfer to the new loan.

Restructured Algorithms

Year-over-year, mortgage lending is up 135% said Murphy, although High Five only accounts for about 5% of that business. He explained that the CU restructured its pricing algorithms and installed a better strategy for pipeline management, "which allowed us to decrease rates and become more competitive," said Murphy. "Now we're among the most competitive lenders in this market."

According to its March 2012 Call Report, Consumers currently holds more than 27,000 loans for a total of nearly $300 million. By comparison, its March 2011 Call Report lists just over 24,000 loans totaling $280 million.

Consumers CU is promoting the High Five Refi through electronic media, including e-newsletters and social media, as well as on billboards around Kalamazoo. Murphy said third-party word of mouth referrals had also helped drive traffic into the branches.

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