A kinder way to refinance your mortgage

There's a ton of negative press surrounding the nation's banks these days. Whether it's the bailouts, the robo-signings, unjust foreclosures, or just the lack of a quality-customer experience, many consumers have grown tired and frustrated dealing with their banks.

Especially if you have tried unsuccessfully to refinance your mortgage with a bank, perhaps it's time that you considered taking your business elsewhere. Maybe it's time you thought about refinancing through a credit union.

While most banks have restricted their lending and tightened their credit qualifications in the wake of the housing bust, credit union have maintained consistent underwriting guidelines through housing boom and bust.

While only a small portion of credit unions offer mortgages (and they're mostly plain-vanilla products at that), they offer competitive mortgage rates and they're known for their top-notch customer service. So while researching a refinance with a credit union may take some added effort, the positive experience could make it all worthwhile in the end.

Credit unions are by the people for the people

Credit unions are non-profit organizations, owned by their members (you the consumer). Unlike banks, they are run by non-paid board members, they don't have monstrous marketing budgets, highly-paid CEOs and they don't participate in risky lending or bank takeovers.

A better customer experience

Credit unions are extremely local; they know their communities and understand how to better serve them.

Small credit unions may not have all of the resources of big banks, but they do direct the resources they have to benefit their local members. That means offering USDA mortgages in rural locales or VA mortgages for local military members.

Bob Dorsa, president of the American Credit Union Mortgage Association, says the local focus "means that the deals go a lot smoother than with big banks."

Loan officer David Halter, of Maps Credit Union in Oregon, says that membership indeed has its privileges. He says that his organization has "the ability to make common-sense exceptions," and that "longtime members with a proven track record would be more likely to get an exception.'

Better customer service

Credit unions only sell about half of the loans they make, and according to Dorsa, about two-thirds to three-quarters of credit unions retain the servicing even when the loan changes hands.

This way, borrowers don't have to deal with servicers that did not sell, underwrite and fund the mortgage to begin with. Credit unions have much lower default rates than other lenders, probably because of the relationships and loyalty that they enjoy with their members.

According to the Credit Union National Association (CUNA), with a loan growth rate (all loans) of 4.3 percent over the past five years, credit unions' loan delinquency rate was only 1.76 percent [in 2009], compared with 5.17 percent for banks.

Finally, because credit unions operate for the benefit of their members, you are more likely to get solid advice about your refinance, even when your interest conflicts with the institution's.

Comparing mortgage quotes

Comparing refinance mortgage rates among credit unions involves a little extra work.

Once you have found the credit union(s) available to you--the National Credit Union Administration (NCUA) has a credit union finder on its website--make sure they offer mortgages.

"Of the 7,000 or so credit unions in business today, only about 1,000 of them are viable residential mortgage lenders," says Dorsa.

Mortgage rates may be a little higher

According to data compiled by the NCUA, credit unions offered better mortgage rates on 1-year adjustable-rate mortgages and 5/1 hybrid ARMs, while banks offered better rates on 30- and 15-year fixed-rate mortgages.

However, those figures include the portfolio loans that credit unions own. According to Halter, "Interest rates for credit union portfolio loans may be slightly higher," while rates for conforming mortgages are in line with the market. That would increase the average rate charged for all credit union mortgages. Credit unions also excel at home equity loans, supplying them at rates substantially below bank rates.

Credit unions: An old-fashioned experience

Not all credit unions have retained their old-fashioned quaintness--some have begun offering an array of mortgage products and services. Others have joined together to form credit union service organizations that function as loan brokers for their members. The actual lender in that case may be a for-profit company.

Smaller credit unions may not have all of the online capabilities and resources of big banks, but for people who want to get a cheap refinance and be treated like, well, people, credit unions may offer the best of all worlds.

Related links :

• HSH.com's USDA Loan Guide