Credit unions help subprime borrowers

Outreach programs aimed at people hurt by subprime mortgages have enabled nearly 500 homeowners across the state to refinance about $69 million in home loans.

The programs, introduced this year by two credit unions that cater to state and local government employees, benefit homeowners who had struggled with the monthly payments on their subprime loans. Such mortgages, often marketed to consumers with poor credit histories, tend to carry low introductory interest rates, then reset at significantly higher rates.

The State Employees Credit Union and the Local Government Federal Credit Union, or LGFCU, have worked for months to help their members refinance onerous subprime loans.

The efforts come after critics said the federal government and big lenders had not done enough to fix the industry's problems. But that's about to change as the fallout from the mortgage crisis mounts.

The Bush administration, led by Treasury Secretary Henry Paulson, is finalizing a plan with lenders to prevent a new wave of foreclosures. It is pushing a plan to freeze some subprime loans that are set to shift to higher rates. More details are expected to be announced today. About 100,000 subprime loans are scheduled to reset each month over the next two years.

Dorothy Evans, 42, a mother of three, took advantage of SECU's outreach effort.

In 2002, Evans refinanced her four-bedroom home in Durham with two mortgages -- a fixed-rate loan with 11.25 percent interest and an adjustable-rate mortgage that started at 7.25 percent. But she said she was never told that her monthly payments could jump as high, or as frequently, as they did.

"I probably should have asked more questions," Evans said. "I learned: Don't be in a rush when you are making major decisions."

When her monthly payments rose $300 in January and were set to jump an additional $100 in July, she feared she and her children would lose their home.

"I didn't know where I was going to go," Evans said. "I didn't know what I was going to do."

Evans, who is divorced and earns about $36,000 a year as a trainer at a state residential facility for the mentally impaired in Butner, saved more than $600 a month by refinancing her loans with SECU.

'They qualified for better terms'

"We're seeing that [many] people should not have been given subprime loans," said Phil Greer, senior vice president of loan administration at SECU. "They qualified for better terms. They were simply deceived or misled and were given a loan that wasn't appropriate for them."

SECU, whose members include 1.3 million state government employees and their families, sent a mailing in May to 100,000 members who the credit union suspected might be struggling with subprime loans. That included members who had obtained a mortgage from another lender in recent years without making a substantial down payment. The information came from members' responses to surveys commissioned by the credit union.

The letter told members that the credit union had developed two mortgages designed to help people burdened with subprime loans, including an adjustable-rate loan whose rate adjusts just once every five years and can rise a maximum of 4.5 percent over the life of the loan. The starting rate is 6.75 percent.

The Local Government Federal Credit Union, which serves 158,000 government employees and their families across North Carolina, is offering the same new mortgages tailored for homeowners with subprime loans. It sent a similar mailing to 18,500 members during the summer.

So far, 432 SECU members who were contacted have refinanced, and more than 50 LGFCU members have done so. An additional 152 SECU members are in the midst of refinancing.