It takes a village. We're all in it together, they say. Of course this is true. Anyone who lives in a tight-knit community with good neighbors would attest to this sentiment, especially if you own your home and feel invested in the area.

A close and interdependent community can lift itself up and make the whole neighborhood stronger. A house with a new roof and well-cared for yard could inspire others to follow suit and invest in home improvement, thereby elevating property values.

The same is true when you are blessed with neighbors who take good care of their household finance. When a community has more homeowners who are not overexposed to market risks and other financial turbulence, the chance of a potential real estate “fire sale” dramatically decreases, leaving the market value – and household wealth – of the entire neighborhood intact.

But what happens when a community – or a credit union – increasingly finds itself with members who are more risk-prone and could tip the scale of risk exposure for the entire group? Often it doesn't take much. Just a few outliers of mortgage defaults or foreclosures can impact the financial stability of a community no matter how good or strong it is.

This is when educating your fellow credit union members and neighbors could pay long-term dividends for everyone's – including your own – financial health. Interest rates have been at historically low levels for more than two years now. Home prices – and home value for owners who want to tap into their rising home equity – have been at a record high for many top markets in the nation. While this is a great climate for homeownership, it is also a landmine for homeowners and buyers to potentially overleverage themselves, and expose not only their own household but the whole community to increased financial risks. Just look back a decade to the 2008 housing crisis: More than half of the U.S. was affected, more than 10 million families lost their homes and not all of those affected were high-risk subprime borrowers. A big part of educating our fellow neighbors and credit union mortgage borrowers is to inform them on how to perform their personal homeownership financial stress test. Such a stress test may include asking yourself the following questions:

1. How much market value decline can I weather before having an upside down mortgage and essentially losing my entire down payment investment or more?

If just a 5% housing market correction in your area could expose a neighbor to losing a substantial amount of home equity, then they could be overexposed to market risks. A 5% market fluctuation is not uncommon in any market in a five-year cycle.

2. How long am I committed to living in this community, compared to the typical length of the market cycle?

Most homebuyers and investors prefer less transient communities because when homes in a community change hands less frequently, property values tend to be less exposed to aforementioned fire sales that bring everyone's home value down. A look back at the recent year-to-year trending of a market could offer a good idea of how slow or quickly a market tends to recover from a temporary downturn. Homebuyers who stay in the community for at least two cycles of downturn and recovery help reinforce the health and stability of the local housing market.

3. Do I have an exit plan if I need to sell under stress or unforeseen circumstances – maybe for a job loss, or even for something positive like a job relocation or surprise arrival of twins?

Homebuyers often say they plan to live in a home for seven or more years, but the reality is, in today's mobile world, increasingly few people do. The fewer surprises there are among your neighbors, and the more exit planning they have for their home, the lower the chance their home sale could negatively affect the value of yours.

The last question is of particular importance. One thing you could do to help your community is to spread the word on the merits of having a sound exit plan. All homeowners should have one, especially in today's nomadic world of unpredictable housing markets. With an exit plan that covers a homeowner's loss even if you sell your home for less than what you paid for in a down market, short sales and foreclosures will become less and less prevalent in your community. Credit unions will stay strong without the burden of defaults and foreclosed properties.

When members of your credit union don't take a financial hit for pursuing a job opportunity or trading up to a bigger home to accommodate a growing family, and when they get a check within 30 days to reimburse their home sale loss in the tens of thousands or more, the financial health of the entire community can continue to strengthen without periodic setbacks. Down payment and equity protection can preserve a homeowner's personal household assets, but it can also lift all boats to help a community prosper. Yes, it does take a village. Now imagine a village that is risk-proof. That's not utopia. That future is here.

Joe Melendez is CEO of ValueInsured. He can be reached at 214-432-5572 or joe.melendez@valueinsured.com.

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