SACRAMENTO, Calif.-Terry Halleck, president and CEO of The Golden 1 CU, Sacramento, Calif., said she does not believe credit unions have any special immunity when it comes to walkaways.
"In my opinion, a consumer that would strategically default on a bank's mortgage loan would have taken the same action if it had been a credit union mortgage loan," she said. "With community fields of membership, members largely view credit unions as a financial service provider versus a financial cooperative. This perspective allows the borrower to view a strategic default as an impersonal action that the company can well afford-in sharp contrast to the substantial financial debt relief granted to the borrower through a mortgage short sale or walkway action."
Halleck noted there have been many mortgage defaults where borrowers have had little alternative, either because of job loss or loan terms that trapped them with huge prepayment penalties, negative amortization features and/or large interest rate increases.
"With that said, it is difficult to pass judgment on each consumer without knowing the full facts and circumstances surrounding their decision to walk away from a property or engage in a short sale," she said. "The California market was notably impacted by negative amortization, pick-a-payment and similar loan products previously offered by some of the most prominent lenders in the area. To the extent the borrowers who obtained these loans were unsophisticated consumers, and taken advantage of by these lenders or trapped in a product where default was the only way out, a caring credit union is a great long-term solution for their financial needs."
Halleck said it could be anticipated that these consumers will become "advocates" of CUs as they realize the benefits of membership.
"Credit unions should be striving to increase market share and evaluate each potential new member based on his or her credit history and the circumstances that have affected the individual's situation," she asserted. "Since a member's credit history generally impacts whether they will qualify for a loan, the loan amount and the applicable interest rate, a credit union already should be taking into account the member's character and capacity to pay even if they had a previous default on another lender's mortgage loan."
