Demand for Loan Modifications Continues

CUs are finding creative ways to adjust member debt payments during tough times.

November 24, 2010
/ PRINT / ShareShare / Text Size +

Although the economy and housing markets show signs of slow improvement, many credit unions face a slew of requests from members to modify loans and consumer debt—particularly mortgages.

Many factors are contributing to this trend, including persistent unemployment, massive layoffs, and a slow housing market that makes it difficult for mortgage-holders to unload houses they can no longer afford. In some markets, real estate values have plummeted as much as 50% to 70%. Meanwhile, the national average unemployment rate hovers around 10%.

Loan modification,” a white paper from the CUNA Lending Council, offers an overview of loan modification practices and processes. Topics covered include:

  • The reasons for a formal loan modification policy and set of procedures, and who to consult in their formation;
  • The difference between documented hardship and negative equity;
  • Tools and options for loan modification;
  • A brief overview of the Home Affordable Mortgage Program (HAMP);
  • The basics of determining Troubled Debt Restructuring (TDR) loans;
  • Analysis of loan modification applications and accompanying documentation;
  • Factors associated with successful repayment of modified loans; and
  • Tracking of loan modifications.

Two primary advantages of performing loan modifications, notes the white paper are:

  1. The ability to retain loans within the credit union’s portfolio; and
  2. The avoidance of foreclosure costs when loan modification proves to be less expensive.

“Loan modification is an option to assist the member through a period of temporary (or sometimes permanent) financial setback,” suggests the whitepaper. “It allows the credit union to retain the loan, and in the case of a home loan, avoid foreclosing on a possibly declining asset while also assuming expensive foreclosure costs.

“Ideally, the credit union wants the member to retain his or her house or car and will do whatever it can to assist the member to continue to make payments on the loan. This is particularly true for members who have a documented hardship such as loss of a job.”

A credit union’s margins, however, aren’t the same as those of most big banks, it notes. When members have lower interest rates, the credit union has less flexibility to dramatically alter the terms of the loan. Further, as a financial cooperative, it must protect the collective assets of its membership, abide by safe and sound lending practices, and adhere to the guidelines and requirements of the National Credit Union Administration (NCUA) and its examiners.

This often means the credit union must turn down members who can still afford their monthly payments even though their loans are for more than the current real estate value of the home.

Next: Loan modification options

Post a comment to this story


What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive