Millions of people bought new homes or refinanced existing mortgages when rates were low during the pandemic. Today, these homeowners are hesitant to move or refinance and sacrifice their low rates.
A new offering from Washington State Employees Credit Union ($5.2B, Olympia, WA) is combatting that lock-in effect and helping qualified members achieve lower-than-normal interest rates on select home loan products.
“We realized we might be able to free up people to access their equity if we were able to offer something for existing portfolio borrowers that was lower than current market rates but higher than the rate they’re already in,” says Kevin Skinner, vice president of retail lending. “That’s a win-win for the member and for the credit union because while we were happy to make those 3.5% [APR] loans five years ago, we’d rather not lock in those rates forever on our balance sheet.”
WSECU’s “Meet Me Halfway” loan splits the borrower’s existing rate with the rate they’d pay on their mortgage today. For example, if a member pays 3% on a mortgage and the refinance rate would be 7%, the blended rate is 5%. The resulting single mortgage includes the payoff of first and second liens along with any cash out.
Meet Me Halfway includes a $400,000 ceiling, is offered only to members in good standing who hold portfolioed WSECU mortgages and is available only for cash-out refis or new purchases. Its underwriting guidelines are largely similar to the rest of WSECU’s mortgages, although there are some different documentation requirements and appraisals are generally required. Skinner says higher loan-to-value amounts are available than on generic cash-out refis in part because the credit union knows the member and already holds their loan.
Niche Product
Skinner admits Meet Me Halfway is a niche product with a small market, but he says it’s been a perfect fit for the members who have used it.
CU QUICK FACTS
WASHINGTON STATE EMPLOYEES CREDIT UNION
HQ: Olympia, WA
ASSETS: $ $5.2B
MEMBERS: 319,463
BRANCHES: 24
EMPLOYEES: 809
NET WORTH: 9.2%
ROA: 0.09%
WSECU reached out via email to approximately 1,000 existing borrowers earlier in the spring, and some mortgage loan officers reached out directly to members they had worked with personally. So far, the credit union has originated about two dozen Meet Me Halfway loans. The majority are cash-out refis — often for life events such as college — but roughly one-quarter have been purchase deals.
The low numbers and slow pace aren’t a concern. Skinner notes it takes a pretty specific set of circumstances for consumers to be eligible and interested in this type of product, and many would rather pay down a low-rate mortgage than add new debt at a higher rate. But there are no regrets about launching it, and WSECU plans to keep it available for those who need it and qualify.
“We’ll keep this available as long as the current rates are higher than someone’s existing mortgage,” Skinner says. “If rates go higher, then the middle spot will continue to rise but only proportionate to the increase in rates at the top end. We think the value proposition is permanent as long as there’s this spread between portfolio rates and current rates.”
Mortgages And Mission
When rolling out this type of project, Skinner says, it’s crucial to ensure everyone involved understands all the moving parts, including not just the rate side but also the mortgage portfolio, the secondary market landscape, government entities, and more.
“There’s a bit of a learning curve in enabling the underwriting team, the secondary marketing team, the finance team, and the production team to understand it fully so they’re having rich conversations with members,” the VP says. “That was a very early learning — we had to make sure all the processes and guidelines and pricing were clearly communicated to all of the constituents internally because they’re explaining something to the member that’s very unusual.”
Even if adoption isn’t as robust as WSECU had initially hoped, Skinner says the product sends a message.
“We think it’s an important signal about how the credit union is built around its membership and serving the interests of those households,” he says. “It’s in alignment with our mission and who we are.”
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