“Mortgage Meltdown” Call Participants Share Ideas for Helping Members

(December 13, 2007 – New York, NY)  On December 10, more than forty credit union leaders joined the National Federation of Community Development Credit Unions (Federation) for a special conference call: “Mortgage Meltdown: The Effects on CDCUs and Local Communities.”  During that call, credit unions from across the country shared their experiences in dealing with the subprime mortgage crisis.

Brenda Weaver, CMB, Director of the Federation’s CDCU Mortgage Center, LLC, and Greg Gemerer, Federation Director of Policy Research, began the call by discussing nationwide trends in the subprime crisis and comparing how those trends have affected CDCUs, conventional credit unions, and banks.

According to Weaver, the crisis that is now hitting the United States is “the culmination of a perfect storm in the mortgage markets: the implosion of the sub-prime market; rising interest rates; a re-evaluation of real estate prices, often resulting in lower home values; economic downturns; and complex, sometimes predatory mortgages. All of these have combined to hit American homeowners especially hard.”

While the crisis has also touched CDCUs, Gemerer explained that the effects on their bottom lines appear to be manageable at the present time.

 Some key statistics he shared include:

• Year to date real estate delinquency ratios for the third quarter of 2007 are up 41 basis points (1.49% to 1.90%) for CDCUs; 28 basis points for all CUs (0.29% to 0.57%); and 57 basis points for banks (0.70% to 1.27%).
• CDCU net charge-offs increased by a small margin of 1.62% year-on-year in the third quarter.  This is compared to 144% and 165% increases in net charge-offs for credit unions and banks respectively, which has led to noticeable increases in their net charge-off.

Gemerer said that while the statistics showed a notable rise in delinquencies for each of the sectors, they also show “CDCUs continue to deal with their delinquencies effectively and manage to collect on the majority of their loans.”

The Federation believes that other credit unions can learn from the CDCU experience and plans to offer a two-day seminar on affordable mortgage lending in Durham, NC, tentatively scheduled for the first quarter of 2008.  For additional information about that event as it becomes available, please visit the Federation’s website: www.cdcu.coop, or contact Pamela Owens at powens@cdcu.coop.

CDCUs Discuss “the Meltdown”

During the call, a number of Federation-member credit unions also spoke about the effect the subprime mortgage crisis on their credit unions and their members, and discussed some of the ways they are helping borrowers in trouble. 

Randy Chambers, Federation Vice-Chairman and CFO at Self-Help CU (Durham, NC) shared his belief that credit unions are in a great position to help borrowers, emphasizing that the time to act is now.  “We need to start refinancing people as soon as possible, before their rates reset and they become delinquent,” he said.

Rita L. Haynes, CEO of Faith Community CU (Cleveland, OH) spoke about the problems her own community is facing, where one out of every nine real estate borrowers is currently in delinquency.  She also emphasized the value of using partnerships to provide members with counseling and assistance. 

Gloria McLendon, Loan Officer at Faith Community United CU, shared the importance of looking at a member’s whole financial picture. McLendon “was able to save a member by refinancing a car loan, which allowed the member to refinance her mortgage with another lender.”

Lynn Meyer, Director of Lending at O.U.R. FCU (Eugene, OR,) emphasized the importance of financial education and homeownership counseling for helping people out of troubled situations.

Edgar Cosner, CEO at The United FCU (Morgantown, WV) explained that his community has not been particularly hard-hit by subprime mortgage problems, and consequently he has been able to help the few borrowers that were experiencing issues.

Some of the key recommendations that emerged from the call were for credit unions to:

• Take advantage of partnerships that leverage resources to help members;
• Be proactive in reaching out to borrowers before they are in trouble; and
• Actively engage in policy reform by sharing their experiences with legislators and other policy-makers.

“CDCUs often make loans that would be considered subprime,” explained Federation President/CEO Cliff Rosenthal.  “The big difference is that unlike many realtors and banks that put people into loans they really can’t afford, CDCUs work with their members to ensure that they can meet their credit obligations.”

“The numbers show that while some low-income members may miss a payment from time to time, CDCUs tend to lend at much more favorable rates, provide financial education and homeownership counseling, and generally have more personal contact with their members, which leads to much lower instances of charge-off,” said Rosenthal.  “This is what it means to be a community development credit union, this is what we do.”

© 2007 National Federation of Community Development Credit Unions.