RALEIGH, N.C. - Spencer Scarboro, vp, mortgage origination forState Employees Credit Union, Raleigh, N.C. has some advice forcredit unions in Southern California that are now faced withhelping members who lost their homes and other belongings to thewildfires that blazed for 10 days and were declared officiallycontained on Nov. 3: "Don't be in a rush to provide long termsolutions based on quick, knee jerk reactions." At press time,state and federal officials were still assessing the damages fromwhat they're considering to be the state's worst wildfires. Whatthey know so far is that 20 people were killed, 3,500 homes werelost, and an area of more than 750,000 acres were blackened. Thecurrent estimate of the cost of property damage and firefightingcosts is $2 billion, but that's expected to rise. "The first thingyou want to do is provide for members' short term needs with loansto help them get through the situation. You need to give themembers affected by the fires time to recover emotionally andpsychologically and be there for them as they go through theprocess," advises Scarboro. Sometimes in situations where membershave lost their homes due to wildfires or, in the case of SECU'smembers, to hurricanes and flooding, the obvious is not always themost accurate. "When we had the recent floods in eastern NorthCarolina from Hurricane Isabel, there was a hesitancy among many ofour members to go back and rebuild in the same area. Many of themwere in no rush to move back, in fact some of them wanted to moveaway from the area," he explains. Still, considering the damagessuffered, Scarboro said they paled in comparison to the damages andloss of homes to members as a result of Hurricanes Fran and Floydwhich hit the area in 1996 and 1999, respectively. All in all,though, he said it was "relatively easier" for the credit union torespond to members' mortgage and loan needs then with emergencyrelief programs because at the time SECU wasn't selling itsmortgages on the secondary market. "We didn't need investors'approval. We were pretty much able to do what we wanted to do interms of mortgage relief efforts. Now, if we want to suspendmembers' mortgage payments, we have to get the approval of FannieMae or Freddie Mac," he says, adding that he's been told that theapproval is typically done on a case-by-case basis, "so that couldreally tie things up." Lou Jennings, evp operations for Navy FCU,which sells its mortgages to Fannie Mae, said the credit unionisn't worried about its mortgage relief efforts getting tied up. Hesaid Navy already got the green light from the Government SponsoredEnterprise to "do what we have to do," including offering thingslike modifying the terms of a member's mortgage, having them payinterest only, or deferring payments on affected members'mortgages. Navy FCU went through its mortgage records andidentified 5,800 members who lived in San Bernardino and North SanDiego and who had mortgages with the credit union. So far, Navyknows two of its members lost their homes to the fires. "Manymembers who lose their homes to tragedies like this don't thinkabout their mortgages until they start dealing with their insurancecompany," says Jennings. While Navy waits to hear from membersaffected by the fire, it's already taken several proactive steps toaddress their expected mortgage problems. The credit union, forexample, is anticipating issuing a 90-day moratorium onforeclosures in the affected areas. It also conducted a zip coderun of homes in the area from among its mortgage records to findout how many loans were delinquent before the fires began. Jenningssaid Navy found eight such mortgages that weren't disaster related."We have our team set up to work with the members," says Jennings."They'll be there to hold the members' hands and do whatever isnecessary." Arrowhead CU SVP of Lending Susan Conjurski said thecredit union which sells all of its first mortgages on thesecondary market through a broker, has talked with investors abouttaking emergency measures to facilitate making new mortgage loansto members affected by the fires, and they've told the $739-millioncredit union they will consider them on a case-by-case basis. Someof the possible steps Arrowhead is considering taking are cuttingloan processing fees and making rate concessions. In a departurefrom previous practice, the credit union may also hold on to somefirst mortgages to help its members. "This is the first time we'veever had to deal with a situation like this," Conjurski explains."We've had fires in southern California before, but never like thisin San Bernardino county." Jim McPheters, president/CEO, CaliforniaCoast CU agrees with Conjurski's assessment of the situation,saying, "We've never experienced anything of this magnitudebefore." The $730 million credit union is authorized to sell toFreddie Mac, although it hasn't had to sell its first mortgages tothe GSE because they haven't proven to be an asset liabilitymanagement risk. CCCU's fixed and variable rate mortgage portfoliois $150 million. The bulk of the CU's mortgages are for 30-yearterms. McPheters said members are just being allowed to return totheir home sites and it's still too soon to tell the extent of thedamages to them. Kathy Cady, svp of member services for CCCU saidaffected members will have to take their insurance proceeds andrebuild their collateral. She said the credit union will try tofind a way to offset these members' payments until a loan iscreated. McPheters noted that the credit union board has had theidea of offering construction loans to members on its drawing boardfor awhile. "The fires might be the impetus we need to startoffering that product." -

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