California has been a focus of mortgage lending scrutiny given the rapid price appreciation in the state. Although most of the focus is on metropolitan areas, Kern County, located two hours North of Los Angeles) has also experienced price volatility.
Kern is the largest county by area but is the least populated. “It is an affordable market,” says Randy Petersen, VP of Loans and Collections, of Kern Schools (Bakersfield, CA; $1.7B). In the county seat of Bakersfield, the average home price is less than $300,000. However, like other markets throughout the country, appraised values became inflated during the market run up.
Kern Schools recognized the potential issues and ceased providing 100% Loan-to-Value financing in 2005. They also had a policy of no investment property loans. The market has changed significantly since 2005, though. Prices today are declining at a rate of 1.5% per month, inventory has increased ten fold with 5,000 homes for sale today, and one out of four is a distressed sale.
Proactively Working With Members
Although real estate loan delinquency at KSFCU remains manageable at 0.4%, Kern decided to be proactive in addressing potential real estate loan challenges for members. It began finding some issues with second mortgages where members held a first mortgage at another institution. In order to try to catch such issues earlier, Kern Schools worked with their credit scoring provider to identify members who were delinquent on first mortgages elsewhere. “This allows us to be proactive. We can look on a case by case to see if refinancing makes sense,” says Petersen. “Early intervention is the key, and we can now reach out to members who may be struggling with payments.”
Reaching Out to the Public
As a result of these efforts, more realtors are referring clients to KSFCU and mortgage volume is up. Beyond this one-on-one approach, KSFCU is also active in public forums. On November 13, the credit union hosted a Foreclosure Prevention Workshop. Participants were taught how to avoid ‘payment shock’ and how to work with a lender. Options available for those who might already be in delinquent on their payments were discussed. They also had staff available to conduct ‘home loan check-ups’ for attendees.
About 140 community members participated in the workshop, bringing copies of their loan documents to be reviewed with credit union staff. When meeting with attendees, many did not know they had negative amortization or adjustable rate mortgages.
Petersen keeps his outlook optimistic. “Although we expect things to continue to get worse before getting better, we are definitely making an impact, one member at a time.”