Portable Mortgages Can Create Permanent Members

Brian Shepherd, Senior VP and General Manager, CMG Mortgage Insurance Company
July 6, 2005

With high housing prices and rising interest rates, a portable mortgage can help a credit union break down barriers to affordability and position itself as a member's primary financial institution.

Portable mortgages allow a borrower to transfer the original loan to a new property without penalty. They are equally appealing to first-time buyers and retirees, allowing them to "buy up" or "size down" in a rising rate environment while taking advantage of the lower loan rate obtained on a previous residence. Buyers also avoid the hassle of shopping for a new loan when moving. First-time buyers look to larger paychecks and bigger homes. Retirees may want to keep money in a loan.

The product is popular in Canada, Great Britain, and Australia, but it has been slow to catch on in the United States. Major obstacles include:

• Longer mortgage terms. In these other countries less-risky 3-10-year terms are common, while 30-year fixed is still king in the United States.
• The lack of a secondary market. This makes portable mortgages unattractive to mortgage bankers who prefer to sell most of their loans.
• The absence of a securitization model from Wall Street.

In addition, mortgage brokers typically won't offer portable mortgages because they might miss out on a second commission when the borrower refinances or purchases again.

Provident Credit Union began to offer portable mortgages in 2004. Provident ($1.3 billion assets, 88,522 members) is in San Mateo County near San Francisco, a market with some of the highest housing prices in the country. Provident saw portables as an effective way to help more members buy homes, while allowing the credit union to build long-term relationships.

Provident’s portable loan statistics to date:

• Originated 87 portable loans
• Total value of $42.4 million
• Account for 8.5% of first mortgages
• Average age of borrower is 43, compared to 54 for all mortgage holders
• Average loan size of $487,356, nearly double of traditional loan products

Provident markets its portable "Home-to-Home" mortgages through print, direct mail, and on its website. The credit union has also reached out to the real estate community. "We presented this product at the California Association of Realtors state conference last year, and we had 500 realtors come by our booth," says Jim Ernest, Provident's executive vice president.

Provident sees a bright future for portable mortgages. "They're timely, offer our members some protection against higher rates, and allow them to afford a larger home," says Ernest.

Brian Shepherd is senior vice president and general manager of CMG Mortgage Insurance Company. This story first appeared in CUNA Mutual Group’s online publication called Added Dimensions at http://www.cunamutual.com/cmg/addedDimensions/ home/0,1775,9057,00.htmland is reprinted with permission.