Downturn Fundamentally Changed CU Mortgage Operations, Executives Say
LAS VEGAS -- The economic downturn has forced many credit unions to take a more "real world" approach to their mortgage lending, one that recognizes that the mortgage lending story includes more than loan origination, two credit union mortgage lenders said.
"Everyone wants to be in on the first part of the story, where we originate loans that help happy homebuyers get the homes they want," George Shipman, vice president of real estate lending for the $1 billion California Credit Union, told CU mortgage executives attending a break out session of the American Credit Union Mortgage Association's annual conference. "But this session is about what happens on the other side, when those loans sometimes run into trouble or even go bad. That's part of the mortgage lending story, too."
Both executives described their credit unions as being fundamentally unprepared for the wave of seriously troubled mortgage loans that began to trickle in 2007 and soon came to almost swamp them. Each of them said that their credit union's mortgage programs had not had a mortgage loan-loss mitigation component because they simply had not needed one before.
"The credit union had never foreclosed a property before the crisis," Shipman said. "Heck, we really didn't have experience of mortgage loans being late maybe more than a week or so." Shipman agreed, noting that members in the past had always been extremely conscientious about making their mortgage payments but that had all changed in the crisis. "Now, they don't seem to like us, or at least not enough to pay us," she said, laughing ruefully.
As of June 2010, NCUA records show that California had almost 1,300 first-mortgage loans on its books worth roughly $362 million and almost 3,400 second mortgages or lines of credit worth roughly $260 million. Year to date, the credit union has written off just over $1 million in real estate loans and recovered almost $790,000. The credit union also has 50 modified first-mortgage loans on its books, worth about $41 million, according to NCUA records, and has modified almost $23.5 million year to date.
NCUA records show that Desert Schools had almost 4,700 first loan mortgages on its books worth just over $680 million, with another roughly 14,500 second mortgages and lines of credit worth roughly $582 million. Year to date, Desert Schools had written off almost $6.6 million in its first mortgage loans and almost $22.6 million in its second mortgages and had not yet reported any recoveries. The CU has 450 modified first mortgages on its books, worth about $87 million and has modified roughly 43 million year to date, the agency reported.
"When they asked if anyone had any experience with the RTC [the Resolution Trust Corp.], and I was the only one who raised his hand, I got the job," Shipman said. The RTC was the organization chartered by Congress to address the assets and problem loans from failed savings and loans during that crisis.
Shipman told the executives that California had chosen to largely use temporary workers that it could specially train for this work. The credit union still viewed those workers as temporary, at least on the scale it had been. He said he decided very early to take loan modification and foreclosures out of the realm of collections and to instead put them in the realm of a specialized unit that would include elements from different parts of the mortgage operations, such as underwriting and certification. He said that California had realized fairly quickly that the CU would have to address loan-modification requests in much the same way as it originated loans.