Purchases Help Residents Refinance Predatory Loans

Three years after Katrina, there are many signs of progress in New Orleans, but huge challenges remain.  Residents continue to return to the city, but the rate has slowed markedly.  The housing crisis is a large part of the problem. 

Both renters and homeowners alike face major difficulties.  “Rental prices are exorbitant, totally unaffordable,” says Mignhon Tourné, CEO of ASI Federal Credit Union, one of the largest community development credit unions (CDCUs) in the country and a vital resource for its 75,000 members in the New Orleans area.  Current and prospective homeowners face their own set of problems.  Homeowner insurance and private mortgage insurance (PMI) are hard to get and inordinately expensive, according to Tourné, putting a tremendous strain on family budgets.  “If not for those barriers, we’d see more people returning to New Orleans,” she remarked. 

Even before Hurricane Katrina, New Orleans residents were suffering from a housing market that was straining their ability to keep their homes.  “Helen” (not her real name) faced a crisis after her home loan rate was increased from 9% to 14%, driving payments sky-high.  Her request for refinancing was refused because of late payments.  Katrina compounded her struggle, as it did for so many others.  In the storm’s aftermath, she found herself responsible for her mother, who had a disability, her sister who had suffered a heart attack, and six nieces and nephews.

Fortunately, she was able to obtain state assistance for the care or her mother, while her sister was able to obtain disability payments.  But her mortgage payments continued to be an enormous burden.  Help came recently in the form of a pilot program developed by ASI FCU with the support of the National Federation of Community Development Credit Unions.  The Federation’s CDCU Mortgage Center provided funds to ASI to purchase the loan it refinanced to Helen.  With a new rate of 6.125% instead of 14%, Helen’s monthly payment dropped by $724 a month.  Life is still not easy, but her debt is now manageable.   

As a community development credit union serving a low-income population, ASI has many elderly members living on a fixed income.  “Belinda,” an ASI member since the early 1990s, was stricken by illness and needed surgery.  Debilitated by her condition, she took a home equity loan to pay medical bills.  In her weakened state, she did not understand how burdensome the terms were: the 14.75% rate meant monthly payments of more than $1,000.  She, too, got dramatic relief from the ASI/Federation program: she was able to refinance the loan down to 6.125%, reducing her monthly payment by $724.

“It is so very important to stabilize our population in New Orleans,” says Mignhon Tourné.  Added to the challenges of disaster recovery, the national subprime crisis, which she said “was a little slow in reaching us, is starting to hit us.”  The credit union has played a major role in helping its tens of thousands of members to rebuild their lives.  But as a highly regulated, federally insured financial institution, ASI FCU has constraints that prevent it from doing all that it would like. 

One of those constraints is a limit on the amount of mortgage loans that ASI can keep on its books – only 27% of its portfolio can be in these loans, according to its Asset/Liability management policy.   To make more mortgages, it has to clear room in its portfolio by selling off some loans.  Its more conventional loans can generally find a buyer.  But these buyers would not be interested in purchasing loans that have been restructured to provide distressed borrowers lower rates, especially if they have had credit challenges in the past. 

That is the gap that the Federation’s CDCU Mortgage Center is trying to fill.  The center was started expressly to help CDCUs expand their affordable-mortgage lending to low-income people, by purchasing CDCU loans and thereby enabling them to recycle their capital. “We definitely see possibilities to expand this pilot program,” said Tourné.  “People come to us with high-priced loans from finance companies and brokers, even without us advertising or marketing the program.  If we can expand the capital available to us for this effort, I’m sure we could grow our program dramatically.” 

Raising more capital to purchase loans from ASI and other credit unions affected by Katrina is high on the Federation’s agenda, according to Alice Greenwald, Director of the Federation’s Community Development Investment Program, which invests in more than 120 CDCUs nationwide.  “We have an opportunity to make a real difference in the lives of the people of New Orleans,” she commented.  “I can’t think of a better use for socially responsible investments.”

Federation CEO Cliff Rosenthal recognized the contributions of the John D. and Catherine T. MacArthur Foundation, the Jewish Funds for Justice with support from UJA-Federation of New York, and the National Credit Union Foundation that made the loan purchases possible.  “Their donations to the Federation’s Community Development Relief and Rebuilding Fund made it possible for us to go beyond our usual parameters in order to refinance ASI FCU’s loans,” he said.