According to the NCUA, the ratio among all federally insured credit unions for fixed-rate and hybrid balloon first mortgages that were two months delinquent, as of March, was 0.9% and the ratio for adjustable-rate first mortgages that were more than two months delinquent was 2.18%. Both numbers suggested that the rate of credit union mortgage loans that eventually wind up in foreclosure will remain extremely low relative to the overall housing and foreclosure picture. But, credit union executives pointed out that foreclosure rates are running at historic highs for their institutions.

"No doubt our foreclosures have been lower than that the nation overall, but certainly higher than we are used to," said Jack Gaffney, executive vice president for lending for the $39 billion Navy Federal Credit Union. "Part of that is because we did not make the same sorts of risky, novelty loans that got so many homeowners and their lenders in trouble, so we haven't had as many loans go bad."

But Gaffney also observed that the foreclosure spike could be seen as an overall necessary evil for the real estate market overall.

"The increase in foreclosures is not all bad news to the extent that it represents a reviving housing market," he observed.

"Lenders are slower to foreclose when housing prices are in the dumps, and they calculate they will have to hold the properties for longer. If a market starts to rise, they might foreclose faster in order to move the foreclosed property back into a more profitable situation more quickly."

With a more or less nationwide field of membership and as the largest credit union mortgage originator and servicer, Navy Federal provides a unique window on the state of credit union foreclosures, Gaffney noted, since it had borrowers in markets hard hit by the economic downturn and ones that have had it relatively easier.

"We were seeing some real foreclosure increases in San Diego, for example," Gaffney said, "but other places, while still higher, not so much. Most of our problem loans have come from members who have gotten out of the service and then lost their civilian jobs in the economic downturn."

According to Navy Federal's June 2009 report to NCUA, the credit union had a delinquency rate of 0.88% for fixed-rate first mortgages and 3.08% for adjustable rate mortgages. In addition, the credit union had almost $495 million worth of foreclosed real estate on its books.

In addition to better loans to begin with, Gaffney attributed Navy's ability to work with borrowers on loans still on its books as helping to keep the foreclosure numbers down. Gaffney reported Navy Federal has about 50% of the loans it originates on its books and has sold about 50% to the secondary market.

The credit union has not yet begun to participate in the Making Home Affordable program, but Gaffney said they have until the end of the year to formally participate.

Instead, Navy Federal has been working one-on-one with borrowers to determine which parameters of their loans can be modified to bring them back, if possible, to a number they can afford. Nobody wants to foreclose, he observed.

Jim Blaine, CEO of the $18 billion State Employees' Credit Union in Raleigh, N.C., said his credit union has taken a similar approach. Like many other CUs, SECU has seen its real estate delinquency and foreclosure rate rise as the economy fell.

According to the credit union's June report to NCUA, SECU holds more than $366 million in foreclosed real estate, up from over $327 million in June of last year.

Blaine said SECU's foreclosure picture is often clouded by the number of times it may be the first mortgage holder in a situation where the borrower has taken a second mortgage with another lender.
"Every modification situation that succeeds is going to be different, and none of the ones that fail will fail for precisely the same reason."

Blaine said that once it's clear that SECU will foreclose on a property, the credit union moves swiftly to place it with real estate agents who know the community and have experience staging and selling foreclosed properties.

"We don't want to have to hold on to these places any longer than we have to," Blaine said. "That's why foreclosures are pretty much a lose-lose circumstance-because we have a property we don't want to have and the borrower has a property that a lot of the time, they still want to have."

Somewhat surprisingly, the small measure of good news in the foreclosure situation may be coming from Florida, one of the hardest hit states.

Mark Starr, CEO of $451 million Florida Credit Union in Gainesville, said his credit union was still doing roughly two foreclosures a month but that the overall pace had slowed.

"What people forget is that the foreclosure and real estate crisis started down here faster than it did in the rest of the country, so we are pretty much burned through our problem real estate already," he said,

Like Blaine, Starr said Florida CU tries to get its foreclosed property on the block quickly, but that the property prices have yet to really start to bounce back. As of June, according to its report to the NCUA, Florida CU had $8.3 million in foreclosed real estate on its books, up from $7.7 million in June 2008 and up 4.2% from the month before.

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