CUs Developing Ways to Identify Good Members in Bad Loans
COLORADO SPRINGS, Colo. -- When a member of Ent Federal Credit Union--a retired military man with an 800-plus FICO score--dropped off the keys to his house early this year because he had not been able to sell it, executives at the credit union knew they had to do something.
On the day the member dropped off the keys, Jan. 3, the homeowner was two days late on the mortgages on the house that he had owned for four years. The five-bedroom house, adjacent to a golf course, hadn't sold in almost two years on the market.
"It was an awakening moment," said Bill Vogeney, Ent's senior vice president and chief lending officer. "We knew there were probably going to be people like him who didn't know how to admit that they had a problem and didn't want to talk to the collectors."
Spurred by the member's situation and the worsening of the economy, the Colorado-based credit union created its Members Solutions Group later that month. The group takes incoming phone calls from members and does follow up on past-due accounts.
The name of the department was a stumbling block, Vogeney explained. "We let them know that if they had a problem, they should call the Member Solutions Group, not the collections group," he said. Ent described the new service and its goals in the credit union's newsletter and on its Web site (www.ent.com).
Calls started coming in, not just from people who were past due on their loans but also from people who knew they had something coming up that would impact their ability to remain current on their bills. "We were talking to people that we probably wouldn't have talked to in the past. It seemed that people's inhibitions went away when they thought they were talking to someone trying to help them," he said.
The group receives about 300 calls a month about problems with loans of all sorts--mortgages, home equity, personals and automobile. They do about 30 to 40 payment arrangements a month, including workouts and payment reductions.
Ent completes about 110 to 150 first mortgages a month, and the 60-day delinquency rate on its $1.79 billion portfolio was 0.46% at the end of August. The mortgage portfolio's 30-day delinquency was 0.5%. The delinquency rate for the overall mortgage industry is 5.0%, while credit unions have a 0.8% to 1.0% delinquency rate.
Vogeney expects the Member Solutions Group to help the credit union fight foreclosures and other loan issues. Still, the credit union has foreclosed on about 14 homes so far this year.
In California, hit hard by a 40% drop in housing prices, several credit unions have also taken steps to provide members with help.
Credit unions including Arrowhead Credit Union, Schools Financial Credit Union and Spectrum Credit Union have started offering no-interest loans and skip-pay programs to members affected by California's recent budget impasse.
In addition, The Golden 1 Credit Union introduced two new loans this year to help some of those who have been caught in the recent wave of foreclosures throughout California. The mortgage repair loan helps those who have already gone through foreclosure find another home and start to rebuild their credit. The mortgage rescue loan helps members facing a rate adjustment stay in their homes.
And, the Credit Union Housing Roundtable is developing a strategy on how CUs can help members with subprime loans. A paper detailing the strategy will be presented at the roundtable's Oct. 16 conference in Seattle.
Daniel Green, executive vice president of strategy for Prime Alliance Solutions Inc. and a member of the roundtable, said the group started with a commonly held belief that 10% of the people with subprime loans should not have been given subprime terms because their credit was strong enough to support better loan terms. He suggested that CUs use data services that can take a credit union member database and match that to publicly available information. It's possible to find out where the home was refinanced, the rate, initial term and product that was used. The credit union can then target members that can be helped.
After members have been targeted, the credit union has to find out from the member what got them into the situation. Was it a job change or loss? Then the credit union has to ask about the member's goal is in the refinancing or workout of the loan. Does the member want to stay in the house? The motivation of the member counts, Green said. Look for a willingness to pay, he said. "We can analyze the ability to pay but the willingness to pay is important," he said, explaining that the loans will be portfolio loans.
There's been a lot of talk about homes as an investment, we need to start thinking about homes as a place to live and getting back to the basics in lending, Green said.