After years of growth in mortgage lending, credit unions now find themselves facing many of the same challenges that traditional banks have experienced, among them difficulty in reaching borrowers behind in repayments, or headed that way.
For assistance, they are turning to third-party field service providers experienced in reaching borrowers who may be overwhelmed, embarrassed and avoiding the door, phone and mailbox. This "on-the-ground" human contact has become more vital, providing needed flexibility in assisting member-members.
Today's loss mitigation business remains 'high-touch', supported by current technology that puts productive pairs of eyes and ears in the field for lenders and servicers. This approach is more important than ever, as new efforts are made to modify loans for those in need, spurred by government programs that intend to facilitate the process.
Historically, credit unions have been known for a keen awareness of the unique needs of their members, The ability to treat CU members respectfully during field visits goes a long way in re-engaging the member with his credit union to work out any loan-related issues. It is not only about default management but member retention as well.
Benefiting from fewer government controls than their depository brethren, credit unions can work with individual borrowers in more creative ways. For example, they may offer "shared appreciation' loan modifications, allowing a member to share any future increase in the home's appreciation with the credit union, in exchange for a reduction of the principal balance of the troubled borrower's outstanding loan.
Much Higher Loan Mod Success Rates
By using information gained through face-to-face interaction to modify loans that fit individual situations, credit unions are reporting much higher loan mod success rates. This might mean wearing jeans and boots, not a suit and tie. It might mean coming to talk when the kids are at school not when they need help with homework. It might mean being able to say that he or she knows someone who was laid off from the same factory as the struggling homeowner.
Face-to-face contact enables one to pick up even the most subtle potential issues. For example, does the individual want to stay in the home? Is there a desire to find a solution? Should a deed-in-lieu be pursued?
The other challenge is the complication caused by regional differences. On the West Coast, borrowers have lost half the value of their homes and at the same time the desire to make payments, producing "strategic defaults." In Florida and Nevada underwater positions have been reached in half the homes with mortgages and, also in Florida, investment properties represent the bulk of the foreclosures and, with no one to rent to, owners simply stop paying. In Ohio, many subprime loans were made and borrowers first lost tremendous amounts of equity and are now unemployed.
Face Time Pays Off
There is a direct correlation between face-to-face-borrower contact and an institution's ability to reduce its need for more costly actions such as repossession and foreclosure.
But making contact is just the first step. In addition to the mortgage, car and other consumer loans, the value of an experienced borrower contact firm can be immediately felt in other areas in which credit unions specialize, such as pre- and post-funding of small business loans. This value is quickly realized when field calls can be combined with loss mitigation and face-to-face inspection.
The information gained through improved borrower contact arms small, local credit unions with the tools to stay a step ahead of members. The more information credit unions can access about the community they serve, the greater their ability to offer the rates, returns and other benefits (such as tools to handle money wisely and town hall meetings at which foreclosure, fraud and potential scams are discussed) the greater their benefit to the community.
When analyzed and implemented effectively, data obtained through borrower contact is invaluable far beyond the ability to collect. This information ultimately enhances a CU's connection to its community by allowing it to become a trusted information source and trusted advisor, instead of just a place to secure a loan.
One of the ways borrower contact companies can help credit unions accomplish this is by enabling them to look in to the future. Borrower contact firms are hearing directly from the borrowers why this is happening and passing it on to their clients. This information is giving credit unions the ability to work with members not only to modify loans after they are past due, but before a problem occurs.
Jay Loeb is vp-strategic development and loss mitigation at National Creditors Connection, Inc. (NCCI), Lake Forest, Calif. He may be reached at:
