Mortgage Loan Mitigation Is as Important as Origination, Execs Say
All credit unions that originate mortgages should have at least a procedure in place for what do when some or most of those mortgage borrowers get into trouble with their loans.
That is the message from two mortgage executives whose credit union is situated in the heart of one of the states hardest hit by the housing crisis.
Bretthauer and Shipman recounted that the economic and housing crisis that would eventually overtake more than 160 of California CU's loans came upon the credit union relatively suddenly. Headquartered in Glendale, Calif., the credit union had long been very conservative in the mortgage products it offered and in how they underwrote them.
"'We hadn't done any of the sorts of mortgages that you would expect might cause problems later," Bretthauer explained. "We hadn't done subprime, and we hadn't done balloons. We did only very few ARMs, and our underwriting was very solid."
First, depending on what the foreclosure laws are in their areas, credit unions setting up loan-loss mitigation procedures should put starting the foreclosure process earlier in the procedure rather than later, Bretthauer and Shipman agreed. The CU would not necessarily need to follow through with the foreclosure, particularly if that were not in the best interest of the member and if another option were available, but starting the process early gives the credit union leverage and the extra time might be needed if the foreclosure process is very long, as it often is in California.
"Sometimes for some of our members, the notice of default comes as a wake-up call," Bretthauer said. "Maybe they have been avoiding our phone calls, keeping their head under the pillow, hoping it would just go away. The notice of default wakes them up that we are serious, and they need to call us to deal with the problem."