Credit Unions Say Federal Mortgage Modification Program Shows Promise
As of the end of July, there were roughly 40 mortgage servicers participating in the Treasury Department's Home Affordable Modification Program, including six credit unions: the $750 million IBM Southeast Employees' FCU in Boca Raton, Fla.; the $1.9 billion Mission FCU in San Diego; the $111 million Oakland Municipal CU in Oakland, Calif.; the $556 million Purdue Employees FCU in West Lafayette, Ind.; the $1.3 billion Technology CU in San Jose, Calif.; and the $3.2 billion Wescom Central Credit Union in Pasadena, Calif.
HAMP is part of the Obama administration's response to the ongoing economic and mortgage crisis. It commits $75 billion to keep up to three to four million Americans in their homes by preventing avoidable foreclosures.
Additionally, the Home Affordable Refinance Program aims to help four to five million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac who are current on their mortgages to refinance into more affordable monthly payments.
The $648 million American First Credit Union, headquartered in La Habra, Calif., is participating in a program being administered by Freddie Mac in support of the HARP program.
The two of the six credit unions available to comment on participating in HAMP praised it but emphasized that they saw it as only one part of helping members stay in their homes.
"Of course, it's very early in the program for us," said Evelyn Royer, vice president of risk management for Purdue Employees, "but overall we are very optimistic about the program."
Royer reported that Purdue services 3,700 mortgages that it originated, 1,700 of which were sold to Fannie Mae. A total of 11 have fallen to more than 60 days delinquent, a condition for HAMP eligibility.
Royer explained that even though Purdue has a field of membership dominated by university employees, who generally have not been as badly hit by job losses and layoffs, there still have been enough to get some members into mortgage troubles.
"Maybe a spouse works for Caterpillar, and that has been significantly impacted by the recession," Royer said. "There are other manufacturing concerns in the area as well that have also been hit."
Once a member applies for assistance through HAMP, the credit union works with the member to get him or he through a set of mortgage modification guidelines that has come to be known as the "standard waterfall." These guidelines push the borrower's mortgage payment below 31% of monthly income.
Reaching that goal involves verifying income with tax returns, noting the monthly payment, which can include fees and property insurance but not late fees, calculating the exact amount of the 31% and reducing the mortgage holder's current interest rate in 0.125% increments until the threshold is reached.
Royer called the process "extremely involved" but said that credit unions would probably be able to find relief through the effort. She also made it clear that the credit union would continue to work with members even if they did not qualify for the program.
"Our bottom line is that we don't want to be in the property management business," Royer said, reporting that the number of loans Purdue had to foreclose on so far had been negligible, but the CU did not want to see the numbers grow.
Laura Hetherington, vice president for lending for IBM Southeast Employees, called the process somewhat difficult and said the credit union's application to participate was lost by program administrators, forcing the credit union to start all over.
"We were all geared up, finally, to get going and then found out that they had lost our paperwork. It was very frustrating," Hetherington said.
Hetherington reported that IBM Southeast Employees found 72 of the 2,700 loans it services eligible for the program and had successfully gotten four mortgages through the waterfall to modification. Not only is the process time consuming, Hetherington observed, but it doesn't always address the core of the mortgage holder's financial problems.
For example, a member could get a mortgage reduced to 31% of monthly income and still not have enough to repay it because of other debts, Hetherington explained. She said IBM remained committed to helping those other members as well.
"We mostly feel sorry for the homeowners because, while they get to keep their home, they will miss out on some of the government incentive money," Hetherington said.
Under the program, homeowners who remain in the program and keep current on their mortgages can receive $1,000 per year for five years toward their mortgage principal.
Hetherington said the CU offers help through the BALANCE financial counseling program to bring overall spending down or refinance existing mortgages to a longer term.
American First is participating in Freddie Mac's Relief Refinance Mortgage but is also working on enrolling in HAMP, according to Ryan Zilker, vice president of marketing for the credit union. The Relief Refinance Program supports HARP.
"We're hoping to roll out Fannie's refinance program next month," he said.
Meanwhile American First has made more than $14 million in loans to members to help them restructure existing mortgage loans in the face of possible delinquency. The program is aimed at homeowners who are current on their existing mortgages but who need to refinance before the rate resets higher.
"American First is excited to provide additional refinancing options for our members," said Bob Street, American First CEO in an announcement about the program. "As a result of this program, we've been able to help our members reduce their mortgage payments and, in some cases, even help them avoid foreclosures."
Zilker explained that the CU expected the refinance program to become even more popular after Freddie Mac changed the guidelines to allow refinancing loans of 125% of a property's value. That would mean a homeowner who has an existing variable-rate mortgage of $250,000 on a home that is now worth only $200,000 can qualify to refinance at a lower, fixed rate.