NCUA Board Chairman Debbie Matz has urged credit unions to "redouble" their efforts to help Americans who are struggling with heavy mortgage debt and other real estate loans.
"In these extraordinary times, when so many homeowners are underwater in their mortgages through no fault of their own, I believe credit unions should evaluate every possible remedy to help responsible borrowers-especially those who are victims of the real estate market crash and those who are unemployed," said Matz in a March 26 statement.
But there is one credit union member who hopes his credit union, Pentagon Federal Credit Union, takes the chairman's words to heart and allows him to finally sell his house in a short sell. That house was built to be his dream home-at least until he and his wife got too old and ill to climb stairs or deal with the oversized home.
Thorlough Carter, called TC by his friends, and his wife built the home in 2003. It's an almost 4,000-square-foot home with three and a half bathrooms on an 18,0000-square-foot lot in Fort Washington, Md., that boders a golf course and is in an area of other luxury homes.
Carter, now 48, was serving as a lieutenant colonel in the U.S. Air Force at the time, was making $150,000 per year and felt comfortable taking out a $600,000 loan from a bank that has since merged with PNC Bank. Carter said he planned on paying off the 30-year, fixed-rate mortgage in 15 years and had actually gotten started on the plan, paying extra toward the principal each month.
The Carter's first problem began when he and his wife walked in the door of their new home in 2003 and were told, almost from that moment, that they had almost $400,000 equity in the land and building.
"I consider myself a financial guy," Carter said, "but I am not a specialist in appraising or real estate pricing. This is what professionals were telling me my home was worth, right off the bat."
And when he compared that seemingly outlandish figure to what neighboring homes were being appraised for, his appraisal of $1.1 million in 2005 seemed almost conservative.
The Carters had a small line of credit on the property of about $60,000 and excellent credit, so, he said, Pentagon Federal Credit Union was quick to refinance the line and expand it in late 2004 or early 2005, ending up with a line of roughly $380,000.
"From my point of view, the plan made sense, based on an even conservative assessment of my home's appraised value," Carter explained, a sense of regret mixed with surprise still coloring his voice. "As I paid off the original mortgage more quickly, I would move some of the larger amounts of money I was paying on that note to the Pentagon Federal note to pay that down. Besides," he added, "with even the conservative appraisal of my home's worth, selling it would pay off Pentagon Federal and leave me something close to $500,000 or $600,000 in my pocket."
The family did not waste the funds from the line of credit, Carter explained, spending much of it on tuition for his children's education in parochial schools and at a university. They also bought a car for one daughter.
"It was the time," Carter said. "In the understanding of what things looked like, they were worth, our actions did not seem unusual."
The family's second problem began in 2007 and culminated in mid-2008 when what had been a nagging medical annoyance for Carter since 1998 was diagnosed, finally, as something more serious.
"I have been diagnosed with something called an essential central tremor," Carter said. "It's a degenerative neurological disorder, so I will never recover without some sort of medical breakthrough, and my doctor is paying close attention to it because it's considered a precursor to MS [multiple sclerosis]."
Having the tremor means not only that Carter experiences shaking in his limbs but that his voice, ability to speak and even follow detailed, complex discussions or conversations, is affected. There are some drugs available to treat the symptoms, he explained, but the side effects to these are often worse than the symptoms themselves, though he has been working around the symptoms.
"I am not supposed to be driving now," he said, "but I am lucky in that there are some major military bases nearby, and if I get tired on the road and can get to them, I can go on base and find a quiet spot to rest a bit before moving on."
Although he had been having symptoms of the disorder since 1998, Carter explained, it had only been diagnosed in 2007 and 2008 because that was when the shaking and other symptoms had become severe enough to be noticeable and to affect his work. That part of the diagnosis was the worst of all, forcing him into a militarily disabled retirement in July 2008. That blow, Carter said, knocked the feet out from under his financial plans and led eventually to the family's problem today.
"It's been terrible, of course," Carter said. "This has wound up costing me my marriage since my wife and I have divorced. We kept our payments up as much as we can, out of our savings, but it's clear that it makes no sense to keep going with a house when the marriage has failed."
Carter said he and his now ex-wife recognized they could not keep the house, but he couldn't bring himself to walk away from it, and he did not want to the damage of a foreclosure. They approached a real estate agent to put it on the market for a possible short sale, and, even in the down market, Carter said the house found a creditable offer.
"We have a lady, a remarkably patient potential buyer, who has made us an offer on the house," Carter said, explaining that she had offered to buy it for $550,000, with $112,000 down and an additional $17,000 in escrow. The offer was good enough, Carter said, that PNC, the first mortgager, had accepted it. It was left only for Pentagon Federal to seal the deal-and that was where Carter said the process has been stuck.
Pentagon Federal as declined to speak to the specifics of Carter's case, but correspondence between Carter and the CU suggests that the Carters have about $320,000 left on the note and that Pentagon Federal offered the Carter's a 20-year note at 0% APR to pay it off at the rate of $1,400 per month. But on a disability pension, Carter said that would just not be possible.
"We are a member-owned, not-for-profit organization," wrote the credit union in March 22 letter to Carter. "Therefore, the individuals harmed by losses suffered by the credit union are not stockholders but other credit union members, some of whom are facing similar financial circumstances. Credit unions and credit in general are about shared responsibility, and we expect our members to accept responsibility for any shortfall in the pay off of a real estate loan."
"We have never tried to argue that we shouldn't pay off the note," Carter said, "only that the amount of money they want per month is just too high for us," he added, explaining that the Carters have counter offered to sign an agreement that would allow them to pay $700 per month for 40 years to satisfy to the debt. "Now, we are waiting to hear back from them," he said, adding that he thought the 40-year deal was much better for all concerned than a foreclosure on the property where the CU would get nothing.
In a statement about its policy on loan modifications in general, Pentagon Federal said that it has a "robust review committee staffed with full-time, long-tenured loan officers who review every member's request for assistance. In each instance, we attempt to understand the member's financial condition and what assistance we might be able to provide. This process was in place long before Chairman Matz's recent comments and reflects our desire to work with our members to assist them in resolving their financial distress."
The credit union noted that it has helped 430 members in trouble with loans through the end of 2009.
"In a number of other instances where the members are seeking forgiveness of their debt, we have attempted to assist those members with long-term unsecured loans at interest rates, in some circumstances, as low as zero percent," the CU said. "It is not, however, our policy, nor do we believe it is in the membership's best interests as a whole, to simply forgive just indebtedness without the ultimate repayment of the debt, particularly when the loan was underwritten properly at the outset."