3 Myths of the Mortgage Meltdown

3 things credit unions might be taking for fact- debunk the myths.


The mortgage industry has been making headlines daily.  There are a multitude of articles on the current state of the mortgage market, and each one paints a distressing picture regarding future outlook.  According to RealtyTrac's September 2007 U.S. Foreclosure Market Report, the United States had a total of 223,538 foreclosures in September. It seems that the glass is more than half empty.

Or is it? September foreclosures are down from foreclosures in August, a 32-month high. However, the troubled market still creates concerns among lenders.  As credit unions evaluate the performance and opportunities in their mortgage portfolios, it is important to separate the myths from the facts.

Myth No. 1: Staff and Members Understand the “Subprime Crisis.”

Staff and members know that something is wrong, but most don’t know what it means or what is causing the problems. According to a TNS Survey published by American Banker, 37% of consumers attribute some of the blame to the White House and 60% of consumers say the real estate industry is also one of the groups responsible. What does that mean? Staff and members are “guessing.” They know something is going wrong and that it might affect them, but they don’t know what role each of these organizations played in the crisis .

“Members are coming for help,” says Michael Conway, V.P. of Mortgage Lending, of Redwood Credit Union ($1.6B, Santa Rosa, CA). “So we are doing a lot of training internally. Every other week our staff is being educated about how to work with members to better understand their situations.” Redwood also holds seminars and talks to the press to educate the public. Education is vital to helping members stay afloat and address any issues they may be facing due to the changes in the market.

Myth No. 2: Members Will Come to Us if They Need Help.

Some credit unions simply think they are unaffected by the housing market turmoil.  “We are really waiting until we see more of a problem,” said the VP of Lending of a large credit union. “This could be seasonal… we are hesitant.”  While credit unions' real estate loan delinquency rate of 0.44% is below that of banks, members may still be struggling. However, some members tend to hide in embarrassment and fear.

No one wants people to lose their homes. Being proactive in reaching out to members through targeted communications and making them aware that the credit union may be able to help is critical, according to Conway.  "Our message is 'come talk to us'," says Conway, "'there are options; we want to work with you'.”

Myth No. 3: The Mortgage Meltdown Means a Downturn for Everyone

Major banks have already reported taking mortgage-related writedowns of over $20 billion. More than money, members are losing their homes.  Can the glass be half full when the situation is predicted to get worse?

Yes, it can. Credit unions, with healthy balance sheets and liquidity, can use this as an opportunity to enhance existing relationships and build new ones with members who might not typically turn to a credit union for their morthgage. “Credit unions never left the fundamentals and now we're in a strong position,” says Conway.   That perspective is backed up by the fact that the $28.9 billion in credit union mortgage originations through the first six months of 2007 are the highest in three years.

Don’t believe the myths. There is opportunity amidst the chaos. In the upcoming Callahan Webinar “Mortgage Dilemma: Balancing Credit Union and Member Interests”, experienced credit unions will share their stories of how they are weathering the mortgage market storm by managing potential problems and identifying situations where they can make a difference.




Dec. 24, 2007


  • ''What''s my monthly payment?'' is the answer we get when trying to educate our members about mortgage loans, and loans in general. Who do we think is doing disclosure/education on internet loans? Even in our stable closed field of membership we have made very little headway in changing mindset, despite lending contacts doubling in length.
    David Russell, Pres. PGAFCU, CO
  • If you understand the crisis and know your membership, the credit union can reach out to members and potential members to save their homes. Not everyone can be helped, but sound lending decisions at this point in time will create members for life and enhance the balance sheet.
    Daniel M. Harp, Dort FCU
  • More of our members have gotten their mortgage loan from someone other than their credit union and in fact less than half of all credit unions even make mortgage loans. Credit Unions need to be proactive in reaching out to their membership as utlimately a member''s difficulty in meeting their mortgage loan obligations can lead to defaults or delinquency in their auto loan, home equity loan, credit card or other unsecured debts. If your credit union doesn''t make mortgage loans, are you knowledgable about the credit unions in your market who do or which ones are FHA approved mortgage lenders?
    Steve VanSickler, SVP/CLO Red Rocks Credit Union
  • We provide comprehensive mortgage origination, processing, underwriting, closing, and servicing for more than 800 credit unions nationwide (although on any given day we''re probably actively providing service to less than half of those). Imagine how market penetration by credit unions could increase if only they''d put mortgage lending near the top in priorities when attempting to make the credit union a member''s PFI.
    Steve Browne