Tailored Mortgage Relief May Help Grow Portfolios
When federal and state authorities and some of the nation’s largest banks agreed in early February to a $26 billion deal aimed at providing relief to nearly two million homeowners hit by the real estate collapse, the news grabbed headlines in major papers.
But many credit unions have already been working to help members faced with delinquency and foreclosure. One example is the $1 billion Sound Credit Union in Tacoma, Wash., which has been providing a number of solutions.
Among the most common are refinancing a loan or modifying the terms to make it more affordable and adjusting the due date and term of the loan. This can help a member who has faced a brief problem and is now back on firm financial footing, according to Sound.
Members can also get a special forbearance to temporarily reduce payments. Other solutions are voluntarily surrendering the deed to prevent foreclosure or selling the home and repaying the loan, even with a possible short sale.
The goal aims to benefit both the member and the credit union. Sound executives would be the first to say none of these are new or innovative answers. They’ve been in collection department toolboxes for some time. The credit union has simply been reaching into that toolbox more than ever. The Sound real estate portfolio holds 700 loans and a little over 4% of them are delinquent, which is a higher amount than the credit union has ever seen. That increase has called for efforts to work with each member to discover the nature of the problem and develop the best solution in each case. Those strategies have helped to keep Sound’s chargeoff rate at 2.1%.
Richard Brandsma, Sound’s president/CEO, said the housing situation in the Northwest has not been nearly as bad as in states such as Nevada, Arizona and Florida.
“However, we are feeling it,” he acknowledged.
Since one of the first steps is getting in touch with the member, is it more difficult when members delay seeking help?
“I would say it’s probably about 50-50,” said Stephanie Mabry, Sound member solutions manager. “We have quite a few members that keep hoping their situation will get better and they’re going to find employment. Some members are very proactive, and right from the get go, ask for assistance.”
Mabry said the credit union will try to get in touch with members to find out what’s going on.
“A lot of times, they don’t return our calls. People are realizing they are underwater,” she said. “It used to be that [the mortgage] was the first thing you pay. Now we’re seeing a lot more people throwing up their hands and walking away. They already have their minds made up.”
Mabry said a number of people have been unemployed for two years and simply don’t have the money to make any payments. Those are the hardest to work with, she pointed out. The credit union can’t simply agree to accept $100 a month for however long it takes for the member to find a job.
Carl Roer, Sound’s vice president of lending, said there’s nothing magical about any of the available solutions that the credit union offers.
“Number one, the member – and we definitely know they are also the owners – has to act. We can’t do it all for them,” Roer explained. “In that process, we have to feel, if we’re going to do something, that we are solving a problem.
Roer said there are cases where people are just totally over extended and there isn’t a solution that’s going to make everybody happy.
“Our overall goal is to do everything we can to help them. But, we only have so many resources. It’s important to note we make loans in good faith,” Roer said. “We [didn’t] put nobody into a house we felt they couldn’t afford. We’re the fiduciary. If they work with us, we’re going to do everything in our power to help them. But if a member creates a loss that costs our membership money, they no longer can be a member.”
In 2011, the $564 million Watermark Credit Union merged into Sound. Roer said Watermark had more mortgage problems than Sound but both entities were focused on helping members.
“We stress to the members, we can’t impact your spending habits,” Roer said. “If you don’t have a job, you can’t continue to spend as though you did have one. You take a look at losses at credit unions nationwide and they’re up considerably. When you see credit union losses increasing, you know it’s because people can’t change the way they act.”