When Lyle Wermund determines whether to modify a mortgage, he asks one key question: Does the loan make sense?
Finding the answer to this question requires examining the value of the collateral and loss potential, the member’s credit history and ability to repay, the member’s long-term employment prospects, and whether additional time will make the situation better or worse, explains Wermund, loss mitigation manager for $313 million asset Blackhawk Community Credit Union in Janesville, Wis.
“The goal is to restructure the loan so it’s successful regardless of what happens, barring job loss or them walking away from the house,” says Wermund. “If we can buy time, hopefully the situation will heal—property values will come back, people will get jobs, and we’ll start to recover.”
Janesville, a South Central Wisconsin city of 60,000, has an unemployment rate of about 13% following the closure of a General Motors (GM) assembly plant that was a city mainstay since 1919.
Wermund explains his role as loss mitigation manager and how the loss mitigation department helps members and minimizes loan losses.
CU Mag: Can you tell us about your current role and how it came about?
Wermund: I’m the loss mitigation manager. I handle all foreclosures, litigation accounts, and short sales related to mortgages.
I was approached to head up loan quality assurance for the mortgage department but got sidetracked into loss mitigation during the economic downturn. Two other employees work with me, handling the paperwork, reporting, and processing of modification applications.
CU Mag: How has your experience as a mortgage originator help prepare you for your current role?
Wermund: It goes back more to the consumer finance days or equity lending. We manually underwrote all loans, and the key to getting an approval was to structure the loan purpose and terms into a “make sense” package.
CU Mag: What factors do you consider when deciding whether a workout loan makes sense?
Wermund: We look at a number of things. What’s the value of our collateral and are we putting it at more or less risk by going forward with a workout? What’s the member’s credit history, ability to repay, and long-term employment prospects? Will time heal the situation—or make it worse?
I was one of the first managers in California allowed to underwrite broker-originated packages. As we know, that industry has had people with not the best reputation. So it’s important in underwriting to read between the lines, not just read the lines themselves.
Handling workouts, one also has to package the mortgage with some ingenuity that will both help the borrower and protect our investment.