RALEIGH, N.C. - Spencer Scarboro, vp, mortgage origination for State Employees Credit Union, Raleigh, N.C. has some advice for credit unions in Southern California that are now faced with helping members who lost their homes and other belongings to the wildfires that blazed for 10 days and were declared officially contained on Nov. 3: "Don't be in a rush to provide long term solutions based on quick, knee jerk reactions." At press time, state and federal officials were still assessing the damages from what they're considering to be the state's worst wildfires. What they know so far is that 20 people were killed, 3,500 homes were lost, and an area of more than 750,000 acres were blackened. The current estimate of the cost of property damage and firefighting costs is $2 billion, but that's expected to rise. "The first thing you want to do is provide for members' short term needs with loans to help them get through the situation. You need to give the members affected by the fires time to recover emotionally and psychologically and be there for them as they go through the process," advises Scarboro. Sometimes in situations where members have lost their homes due to wildfires or, in the case of SECU's members, to hurricanes and flooding, the obvious is not always the most accurate. "When we had the recent floods in eastern North Carolina from Hurricane Isabel, there was a hesitancy among many of our members to go back and rebuild in the same area. Many of them were in no rush to move back, in fact some of them wanted to move away from the area," he explains. Still, considering the damages suffered, Scarboro said they paled in comparison to the damages and loss of homes to members as a result of Hurricanes Fran and Floyd which hit the area in 1996 and 1999, respectively. All in all, though, he said it was "relatively easier" for the credit union to respond to members' mortgage and loan needs then with emergency relief programs because at the time SECU wasn't selling its mortgages on the secondary market. "We didn't need investors' approval. We were pretty much able to do what we wanted to do in terms of mortgage relief efforts. Now, if we want to suspend members' mortgage payments, we have to get the approval of Fannie Mae or Freddie Mac," he says, adding that he's been told that the approval is typically done on a case-by-case basis, "so that could really tie things up." Lou Jennings, evp operations for Navy FCU, which sells its mortgages to Fannie Mae, said the credit union isn't worried about its mortgage relief efforts getting tied up. He said Navy already got the green light from the Government Sponsored Enterprise to "do what we have to do," including offering things like modifying the terms of a member's mortgage, having them pay interest only, or deferring payments on affected members' mortgages. Navy FCU went through its mortgage records and identified 5,800 members who lived in San Bernardino and North San Diego and who had mortgages with the credit union. So far, Navy knows two of its members lost their homes to the fires. "Many members who lose their homes to tragedies like this don't think about their mortgages until they start dealing with their insurance company," says Jennings. While Navy waits to hear from members affected by the fire, it's already taken several proactive steps to address their expected mortgage problems. The credit union, for example, is anticipating issuing a 90-day moratorium on foreclosures in the affected areas. It also conducted a zip code run of homes in the area from among its mortgage records to find out how many loans were delinquent before the fires began. Jennings said 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 is necessary." Arrowhead CU SVP of Lending Susan Conjurski said the credit union which sells all of its first mortgages on the secondary market through a broker, has talked with investors about taking emergency measures to facilitate making new mortgage loans to members affected by the fires, and they've told the $739-million credit union they will consider them on a case-by-case basis. Some of the possible steps Arrowhead is considering taking are cutting loan processing fees and making rate concessions. In a departure from previous practice, the credit union may also hold on to some first mortgages to help its members. "This is the first time we've ever had to deal with a situation like this," Conjurski explains. "We've had fires in southern California before, but never like this in San Bernardino county." Jim McPheters, president/CEO, California Coast CU agrees with Conjurski's assessment of the situation, saying, "We've never experienced anything of this magnitude before." The $730 million credit union is authorized to sell to Freddie Mac, although it hasn't had to sell its first mortgages to the GSE because they haven't proven to be an asset liability management risk. CCCU's fixed and variable rate mortgage portfolio is $150 million. The bulk of the CU's mortgages are for 30-year terms. McPheters said members are just being allowed to return to their home sites and it's still too soon to tell the extent of the damages to them. Kathy Cady, svp of member services for CCCU said affected members will have to take their insurance proceeds and rebuild their collateral. She said the credit union will try to find a way to offset these members' payments until a loan is created. McPheters noted that the credit union board has had the idea of offering construction loans to members on its drawing board for awhile. "The fires might be the impetus we need to start offering that product." -

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