PHOENIX - Members with 90-mile roundtrips to work. Gas prices topping $4 a gallon. ARMs resetting. And plunging home values leaving behind little or no equity.
In Phoenix, “It’s all adding up,” said Amy Hysell, SVP and chief lending officer at Arizona FCU, which has created a “Save My Credit Team” to reach out to members well before they think about defaulting.
Since the team was introduced in January, Arizona Federal had written $18.5 million in workout loans through May, helping 571 members.
“We’ve always done workout loans, but at the start of the year we took a different approach because we knew our members were in harm’s way,” said Hysell of taking the proactive approach. “So the Save My Credit Team was designed to save members’ FICO scores and to also head off potential defaults.”
Warning signs appeared last year in April when the CU began to see a continued rise in delinquencies, Hysell explained.
“That rise coincided with the major ARM resets in the real estate markets. That was our exact pivot point. Our underwriting requirements had never been a problem. And before April, our delinquencies remained steady at 1% year over year.”
Hysell acknowledged that before the Save My Credit Team was formed, Arizona Federal did not have a workout loan strategy. The credit union had a workout loan officer who generally took action when a member filed for bankruptcy, or after foreclosure or repossession. “That’s when we would work out a deficiency balance,” Hysell said. “We restructured very few loans.”
The six members of the Save My Credit Team are much more proactive, looking for warning signs–members struggling with payments or seeking additional funds–and reaching out to them to discuss their financial situation.
To create the team, Arizona Federal shifted resources, moving loan officers from a department the CU said has seen declining activity. And since the new position required excellent counseling skills, Hysell said the credit union chose “seasoned loan officers who have the ability to be effective in the interview process and possess strong counseling skills.”
Not only do those traits put members at ease, they also allow the credit union to better understand the nature of members’ credit issues.
“We need to talk to members to see their complete financial picture and determine if they truly can afford the loan and if we can resolve the situation,” explained Hysell, who said the CU also partners with BALANCE to provide financial counseling.
The $1.9-billion Arizona Federal only restructures if it feels the member can keep the car or the home, and it typically does not negotiate rate. “We will blend rates together,” Hysell said. “We might do a three-year balloon to keep the payment low for the next three years and hopefully the member’s situation will turn around by then. Our choices are, Do we repossess and lose the loan balance, or Do we work with members so they can afford the payment now.”
If members seem unwilling to pay the credit union back, the loan is handed off to collections. And when workout loans are closed, Hysell said terms are very clear.
“When we restructure we go through a hard close,” she said. “The member understands that if they default, we will take quick action.” Most of the workout loans have resulted from members contacting the Save My Credit Team, or through referrals from loan underwriting or risk management. The credit union also advertises the service through in-branch signage and in late notices. “We won’t turn our back on you,” is the theme. “If we are not here now to help our members, they are not going to be able to get affordable credit later and will be at the payday lenders,” offered Hysell, who said plans are to make the team permanent “for the foreseeable future.”(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
