Tuesday, September 1, 2009

CUs Foreclosing on Fewer Homes Than Banks and Not as Quickly

By The Credit Union Times

In general, credit unions appear to be foreclosing on a smaller percentage of their mortgage loans than other financial institutions and are usually taking longer to do it, according to credit union executives and NCUA data.

An organization that bills itself as the “leading online marketplace of foreclosure properties,” reported that foreclosures nationwide rose 7% in July over the previous month and were 32% over what they had been a year before. The worse states for home foreclosures were, as they have been for months, California, Florida, Arizona and Nevada. However, Utah, Idaho, Georgia, Illinois, Colorado and Oregon were also high in the firm’s rankings.

July marks the third time in the last five months where we’ve seen a new record set for foreclosure activity. Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we’re seeing significant growth in both the initial notices of default and in the bank repossessions.

Credit unions have been part of this trend, but in a more deliberate manner, according to NCUA data and credit union executives.

According to the NCUA, the ratio among all federally insured credit unions for fixed-rate and hybrid balloon first mortgages that were two months delinquent, as of March, was 0.9% and the ratio for adjustable-rate first mortgages that were more than two months delinquent was 2.18%. Both numbers suggested that the rate of credit union mortgage loans that eventually wind up in foreclosure will remain extremely low relative to the overall housing and foreclosure picture. But, credit union executives pointed out that foreclosure rates are running at historic highs for their institutions.

No doubt our foreclosures on Chapel Hill homes have been lower than that the nation overall, but certainly higher than we are used to. Part of that is because we did not make the same sorts of risky, novelty loans that got so many homeowners and their lenders in trouble, so we haven’t had as many loans go bad.

But also observed that the foreclosure spike could be seen as an overall necessary evil for the real estate market overall.

The increase on foreclosures on Winston Salem Homes is not all bad news to the extent that it represents a reviving housing market.

Lenders are slower to foreclose when housing prices are in the dumps, and they calculate they will have to hold the properties for longer. If a market starts to rise, they might foreclose faster in order to move the foreclosed property back into a more profitable situation more quickly.

With a more or less nationwide field of membership and as the largest credit union mortgage originator and servicer, Navy Federal provides a unique window on the state of credit union foreclosures, since it had borrowers in markets hard hit by the economic downturn and ones that have had it relatively easier.

According to Navy Federal’s June 2009 report to NCUA, the credit union had a delinquency rate of 0.88% for fixed-rate first mortgages and 3.08% for adjustable rate mortgages. In addition, the credit union had almost $495 million worth of foreclosed real estate on its books.

In addition to better loans to begin with,the Navy’s ability to work with borrowers on loans still on its books as helping to keep the foreclosure numbers down. The Navy Federal has about 50% of the loans it originates on its books and has sold about 50% to the secondary market.

The credit union has not yet begun to participate in the Making Home Affordable program, but they have until the end of the year to formally participate.

Instead, Navy Federal has been working one-on-one with borrowers to determine which parameters of their loans can be modified to bring them back, if possible, to a number they can afford. Nobody wants to foreclose, he observed.

According to the credit union’s June Raleigh real estate report to NCUA, SECU holds more than $366 million in foreclosed real estate, up from over $327 million in June of last year.

The SECU’s foreclosure picture is often clouded by the number of times it may be the first mortgage holder in a situation where the borrower has taken a second mortgage with another lender.

Every modification situation that succeeds is going to be different, and none of the ones that fail will fail for precisely the same reason.

Once it’s clear that SECU will foreclose on a property, the credit union moves swiftly to place it with real estate agents who know the community and have experience staging and selling foreclosed properties.

They don’t want to have to hold on to these places any longer than we have to. That’s why foreclosures are pretty much a lose-lose circumstance–because we have a property we don’t want to have and the borrower has a property that a lot of the time, they still want to have.

Somewhat surprisingly, the small measure of good news in the foreclosure situation may be coming from Florida, one of the hardest hit states.

What people forget is that the foreclosure and real estate crisis started down here faster than it did in the rest of the country, so we are pretty much burned through our problem real estate already.

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