BOSTON, Mass. — Credit unions continue to push regulators for more latitude in making new mortgages and helping members struggling with existing loans.
Community First Credit Union CEO Catherine Tierney reiterated the importance of her credit union's unique, short-term loan product in increasing first mortgage origination at the Appleton, Wis.-based institution.
The program provides members with an $8,000, short-term interest-free loan for members who qualify for the federal homebuyer's credit, provides the mortgage financing and then helps with the members' tax returns to ensure they get the funds to repay the credit union. During the NASCUS annual meeting here, Tierney called on regulators to tell the CU success stories to the public, drawing nods of agreement from attendees.
In Colorado, Norbel Credit Union has a program where it will take whatever the members can afford to pay for their loans (for up to six months), apply those payments to the principal, and then forgive the interest. CEO Ed Bigby acknowledged that such a program could draw some raised eyebrows from examiners.
"We're going to have to have some latitude from regulators," he said. "Some of our high-income folks are now low income."
The most vulnerable members are taking an even bigger hit now, reminded Cliff Rosenthal, director of the National Federation of CDCUs. Increased scrutiny without understanding and being flexible towards the unique nature of community development institutions can spell trouble for CUs and members, he said.
"We get a little disturbed when regulators regard low-income folks as prima-facie bad risks," said Rosenthal, who noted that while delinquencies are higher at low-income CUs than "mainstream" cooperatives, it is more likely a delinquency will result in a charge-off at those mainstream institutions than at a CDCU. "The market is different and you have to look it at through that lens," he added.
As Credit Union Journal previously reported (Experts: Stay Course on Loan Mods Despite Rise in Redefault Rate, July 13), the national re-default rate has been soaring since early 2008. Much of that can be attributed to plans that adjust interest rates or move missed payments to the backside of the loan and do not address the amount the borrower has to pay each month, said Callahan and Associates President Chip Filson, who warned credit unions not to follow the lead of big banks when making loan mods.
"Most of the modifications that fail don't change the payment," he said. "If you can't modify the payment to fit the person's economic circumstances...then it is very doubtful the modification will in fact take. That's why you are seeing a 25% success rate from banks."
The good news is that credit unions that make mods that do change the monthly payment are seeing anywhere from 75% to 90% success rate, according to Filson.
