ORLANDO, Fla.-For Dale Frankhouse, the harsh reality of the mortgage market is all around him. As director of lending with Sun FCU in Maumee, Ohio, he confronts the reality every day of a home market with more than 3,200 homes in foreclosure.
Meanwhile, in his own neighborhood, he related, a home recently sold for just $1,000 more than what he paid for his own house 11 years ago.
Still, he believes a combination of steps the $321-million credit union has taken in its two markets, Toledo, Ohio and Philadelphia, are helping to minimize risk and have increased lending opportunities.
After touching on the headlines every lender is familiar with, including a 29-year high in mortgage delinquencies, Frankhouse added, "In Toledo, we are definitely feeling some pain in the heartland."
In late 2007 Sun Federal watched demand for ARMs begin to decline and in response introduced three balloon products: a 15/30 non-rollover note; a 12/25 non-rollover note, and a 12/30 non-rollover note. Since Jan. 1 it has closed nearly $20 million in the three products, with the 15/30 proving the most popular.
"These products were created because members wanted to move some of their ARMs to us, so we created these balloon products," said Frankhouse, who shared his insights with CUNA Lending Council's annual meeting here.
The loans do not conform to the secondary market, and as a result Sun FCU has been increasing the rate on the products recently as it is approaching the ceiling on the loans it is willing to hold in-house.
Among the policy changes Sun FCU has implemented due to the current market conditions, according to Frankhouse:
* Reduced Max CLTV from 100% to 95%.
* Raised minimum credit score to 640.
* If property owned les than one year, purchase price used, not appraisal.
* Subordinate financing minimum credit score raised to 680.
* Subordinate rate increased to cover risk, encourage MI.
"Workouts are what we think credit unions do best, and that has been our area of success," said Frankhouse. He said Sun FCU is handling workouts on a case-by-case basis, and for many members terms have been rewritten to make payments manageable. Several loans have been refinanced from other lenders, with some help from additional collateral and/or co-signers.
When will the housing crisis hit bottom? Frankhouse, who was educated as economist, said his "educated guesstimate" is that following the sale of the last big wave REO properties, which are just now being foreclosed upon, it is most likely 2010 rather than 2009.
