Credit Unions a Haven in Mortgage Storm

Behind the headlines of the credit crisis that has engulfed the U.S. stock market, a growing number of Americans are defaulting on their mortgage loans. The rest of us are wondering how we can avoid becoming part of the statistics.

For those pondering a new mortgage, a home-equity loan, a car loan or some other form of borrowing at an uncertain time like this, federal credit unions may offer a credible alternative.

Consider this: While mortgage default rates are spiking at banks and other lenders like mortgage giant Countrywide Financial (CFC Quote), the default rates at credit unions on almost $200 billion in home loans outstanding in the U.S. is close to zero, according to the Credit Union National Association.

Credit unions are not-for-profit cooperative financial institutions that pay no corporate income tax. Their customers are their owners, and their capital base consists of deposits from their members, along with their retained earnings.

Many people assume that they only serve government employees, factory workers or underprivileged groups like immigrant communities and minorities. In fact, most Americans are eligible to join a credit union, and given the tumultuous times in the mortgage market, it could be a solid option.

Unlike other lenders that have now run into trouble with widespread defaults, credit unions hold the majority of the loans they make in their portfolio, rather than sell them off into the secondary market. This structure gives them a greater incentive to attract keep their members satisfied -- and solvent -- in the long term.