The tidal wave of foreclosures continues despite the mortgage industry's pledges to work with homeowners who fall behind on their monthly payments and the implementation of federal and state government assistance programs.
But the giant State Employees Credit Union has found a formula for keeping its members in their homes. The current foreclosure rate at the credit union, which has 1.6 million members, is barely a smidgen higher than it was five years ago in spite of a shattering recession that has made the American dream of owning a home a nightmare for all too many.
Nearly two years ago, SECU installed a Mortgage Assistance Program that calls for its loan officers to contact members at the first signs of financial problems - as soon as they're more than 30 days overdue on their mortgage payments - to tell them that the credit union offers alternative payment plans for homeowners in distress.
"We turned our collectors into counselors," said Mark Coburn, senior vice president of loan servicing at SECU.
The identical program was put in place with similar success by the Raleigh-based Local Government Federal Credit Union, which has more than 190,000 members across the state. LGFCU is a separate credit union but shares branches and some back-office operations with SECU.
The SECU program bears many similarities to loan modification programs offered by other mortgage-servicing companies and banks. But many of those efforts continue to disappoint. Chris Kukla, senior counsel for government affairs at the Center for Responsible Lending in Durham, says the difference is "execution and resources."
Some giant mortgage-service companies don't have sufficient staff to handle the volume of calls they're getting, or their staffs give out bad information. The problem was so bad that this year state regulators implemented a rule requiring that mortgage servicers respond clearly and promptly when homeowners seek assistance.
SECU's emphasis on getting in front of the problem early also differentiates it from the typical scenario where the onus is on the borrower to initiate contact. That often doesn't happen until borrowers have dug themselves a hole they can't get out of.
"By contacting them at the outset, it eliminates bigger and larger obstacles [arising] in the future," said Melissa Kerley, financial education specialist at LGFCU.
To date SECU's program has helped more than 7,000 homeowners across the state. Because the credit union caters to state employees and their families, demand for the program could grow next year given the prospect of significant layoffs or furloughs in state government as the state grapples with a $3.5 billion budget shortfall.
The options SECU offers as part of its Mortgage Assistance Program include extending the length of a mortgage, accepting partial payments for six months and modifying the terms of a loan or refinancing.
"None of the programs we have in place call for the rest of the membership to subsidize a mortgage," said Coburn. "They [the home owners] still owe it, but they will be paying it later,"
SECU also will allow some troubled borrowers who don't otherwise meet its lending standards to refinance their mortgages.
"When they already owe us the money, we will make exceptions to our normal underwriting guidelines ... to make the payments affordable," he said.
Altogether, about a dozen credit unions in North Carolina are working with their members to modify their mortgage terms if they're struggling financially, according to the N.C. Credit Union League.
"Since credit unions are owned by the members they serve, it is in their best interests to do all they can to achieve a happy outcome when the unexpected happens to a member," said spokesman Jeff Hardin of the Credit Union League.
When it comes to foreclosure rates, credit unions also have benefited from conservative loan policies. When you take out a loan from a credit union, Hardin noted, in effect you're "borrowing money from other credit union members."
Data from the Credit Union National Association shows that 1.85 percent of North Carolina credit unions' real estate loans were delinquent in June, compared to 10.54 percent for the state's banks.
Some credit unions, like the Durham-based Latino Community Credit Union, which has 10 branches across the state that cater to Hispanics, modeled their mortgage assistance programs afterSECU's.
"If you give [people] a chance to keep up, they will be able to retain their homes," said CEO Luis Pastor. "It is in their best for them to stay in their homes, and it is in the best interest of the community for them to stay in their homes."
Last year SECU foreclosed on 179 homes out of 121,625 outstanding mortgages and home equity loans, a mere 0.15 percent. That rate is just 6 one hundredths of a percent higher than it was in 2005.
This year's pace of foreclosures so far is similar - 175 out of 123,815 loans.
The story is the same at LGFCU, which this year has foreclosed on just 11 properties out of 3,456 mortgages. That, too, is just a bit over its foreclosure rate in 2006.
Big foreclosure gap
By contrast, the 63,284 foreclosure filings statewide last year marked a 47.6 percent increase from 2005, according to the N.C. Administrative Office of the Courts. This year's filings are on track to set a record. (Some homeowners end up losing their homes while others work out repayment plans.)
As SECU's program has gained awareness, some members have begun contacting the credit union in advance of missing payments.
That's what the Cains did this spring. The schoolteachers, who live in Durham, started struggling to make their mortgage payments after Misty, 31, quit her job as a third-grade teacher so that she could spend more time with their 2-year-old son.
"Teaching is a job where you have to put a lot into it," she said. "You have to take a lot home."
She continued substitute teaching while she looked for another job, but that wasn't enough. Although the couple never fell behind on their mortgage, credit card debt soared to nearly $20,000.
They explored selling the five-bedroom "dream home" that they paid $269,000 for when they moved here from California five years ago, but learned that the best they would probably do is break even, wiping out about $40,000 in equity.
So they contacted SECU and met with a counselor who came up with a more affordable payment plan. That included paying just 50 percent mortgage payments for six months - not counting their escrow payments - as well as refinancing their mortgage at a lower interest rate. The latter permanently reduced their mortgage payments by $150 or so a month.
"It helped us keep our house," said Erik Cain, 36. "That's the ultimate thing."
Their happy ending also has a feel-good afterword: Misty Cain recently began a new job as a 911 communicator answering emergency calls for the City of Durham.
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