PHOENIX, Ariz.-As the housing market continues to struggle, credit unions remain focused on avoiding defaults through various loan modification efforts.
"We're doing everything we possibly can to help our members stay in their homes," said Jason Meyers, director of public relations at Desert Schools FCU. "Last November, we held our first-ever, loan modification workshop to assist members struggling to afford their mortgage payments."
The event was created to reach members in need and resulted in more than $11 million in loans being reviewed and modified for approximately 80 members. The $3-billion Desert Schools expanded its loss-mitigation department from one person in 2008 to nearly two-dozen by the end of 2009, and they remain busy today.
Meanwhile, in Flint, Mich., in addition to its work with the Hardest Hit Homeowners fund (see related story, page 14), Dort FCU has been tackling the housing crisis on its own. With 19% unemployment in the rust belt city, the CU has experience in managing through tough times. Real Estate Manager Lori Rock noted that Dort FCU has been forced to change its parameters as the economic crisis deepened; for instance, DFCU previously did not consider unemployment insurance when looking at a member's financial situation. "Today we look at that as beneficial because at least they are receiving some income," she said.
While the government program only provides a 12-month modification, Dort FCU goes much further after looking at members' complete financial pictures. "We created an internal modification program that modifies [the mortgage] for up to three years," Rock explained. "It brings their payments in line with the situation at the time. We hope that gives them time to get back to work and stay in the homes."
In some cases the CU has reduced the interest rate as low as 4% and required interest-only payments for an entire year. The summer months of 2010, however, have not been kind to those hoping for a housing market rebound. While prices rose slightly, existing home sales plunged 27.2%, while new starts also missed expectations. Unemployment has also remained stubbornly high and the walk-away phenomenon appears to be going mainstream.
"You have to have some kind of income to make the payments and over the course of this whole crisis I think we've gained a large degree of moral hazard as the stigma of default and foreclosure has dropped," observed CUNA Mutual Group Chief Economist Dave Colby.
Added Bob Dorsa, president of the American CU Mortgage Association in Las Vegas, "Years ago, to walk away from a home was tantamount to sticking pins in your eyes. But I think some people are finding that they have no other alternatives."
According to Rock, loan mods are working, but members have voiced concerns about what will happen once the modification term expires. "If the three-year period ends and they still are not back to work we'll look at it and manage the risk at that point," she said.
