High-Touch Modification Programs Better for Credit Unions and Members
Schwartz and Randy Partin, senior vice president of audit services at the $19 billion State Employees' Credit Union, shared tips and strategies to maximize mortgage loan modification efforts that benefit both members and credit unions.
HOPE NOW is an alliance that includes counselors, mortgage companies, investors and other mortgage-market participants that attempts to reach out to homeowners and help them utilize government and lender programs so they can stay in their homes. So far in 2009, the group said it has prevented 1.7 million foreclosures and has a 20% response rate to its direct mail solicitations, which are sent to borrowers more than 60 days past due and have not responded to communication from their lenders.
"A lot of work being done in Washington, and they've created some well thought-out policies," Schwartz said. "However, they are very difficult to execute, and the public doesn't trust banks."
Borrowers have many reasons for not contacting their lenders, she said, but embarrassment and a lack of financial literacy top the list. HOPE NOW's soft approach overcomes those obstacles, she said.
How does the nation's second largest credit union get delinquent members to respond to lender communication? Partin says his SECU branch managers FedEx handwritten notes informing members that they are guaranteed at least a 30-day extension for simply attending the face-to-face meeting.
"Of course, being located in one state with 225 branches, we can do this," Partin said.
Each member listed on the mortgage loan is required to attend the meeting and share all debt obligations, bills and expenses, Partin said. The process sometimes reveals secrets between spouses.
Partin said the extra effort is worth it in order to preserve a positive reputation for credit unions. Institutions that evict a family with children aren't able to defend their decision-making process as news of the eviction spreads throughout the neighborhood and support systems, like churches and other community groups.
HOPE NOW works within government programs, like the Making Homes Affordable Program, so the modified mortgage loan payment can't exceed 31% of the borrower's income.
HOPE counselors are permitted to lower interest rates to 2%, increase the term to 40 years or defer principal to the end of the loan.
SECU's mortgages are mostly two-year adjustable-rate products, Partin said, and because the rate is already below 4% for 90% loan-to-value loans, the credit union can't go any lower. So, the credit union must find other solutions for members.