ANTIOCH, Calif. — Robert Greaff, President/CEO of the $28 million Delta Schools Federal Credit Union, said real estate loan-to-value is so bad in his Bay Area bedroom community half of his home equity portfolio is 100% LTV or greater. It's all depreciation; Delta Schools' home equity lending maximum has always been 85% LTV.
"Many smaller credit unions with problems got too heavy into mortgages, or maybe their entire portfolio is in one area that's hurting, like ours," Greaff said, adding he thinks home values will drop even lower in his community.
On Jan. 9, Delta Schools closed a first mortgage that leveraged Antioch's low home values to offset an inevitable home equity loss. The credit union had received foreclosure notification on a first mortgage held elsewhere; however, the members' corresponding HELOC was current.
"We were already tracking our high risk loans, and they were at 180% LTV, so we knew they were in a bad spot," Greaff said.
The CEO said his members told him they were assured by their mortgage firm that the payment on their negative amortization loan would never rise above $2,200 per month. When it rose to $3,400, the members tried to keep up, but eventually became so discouraged they stopped paying it altogether.
"I asked them if they wanted the house, and they said yes," he said. "They put $180,000 down, and they could handle the original payment."
The members owed $360,000 on the first mortgage and $100,000 to the credit union. However, the home was worth $250,000.
Greaff said he consulted with his NCUA examiner, who asked him if taking the first would be in the best interest of the member. The CEO replied that it would be good for the member, but the property was almost 100% upside down. The solution? The examiner suggested making a short sale offer.
"The examiner said if I could show that I'd lose less on the first mortgage than I would otherwise, he would support it because I'm helping the member while saving the credit union money," Greaff said, adding his board was also supportive of such a win-win scenario.
Rather than make an offer equal to the home's appraised value, Greaff low-balled an offer 12% below appraisal, to offset the 6% in Realtors' fees he'd have to pay if he had to foreclose.
Not only did Greaff convince the bank to accept his low bid and pay off the first mortgage for $211,000, he also got the institution to pay his Realtors' fees. Once the title process was complete, Delta Schools created a new 30-year, fixed loan in the amount of $307,000, which included a negotiated pay-off of the members' existing, adjustable-rate HELOC.
"I got them out of that adjustable rate because I wanted to make the new loan as clean as possible," Greaff said. "I know what they can afford, so I want to keep them at that level."
The CEO said he's considering the same strategy for another member, who has suffered a personal tragedy. Greaff said while he thinks the credit union's efforts have created members for life, "we're finding out in this economy, even our members for life can go by the wayside."
–handerson@cutimes.com

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