Patelco Stems Foreclosures With Loan Modifications

A California credit union combats mounting REOs by keeping score cards of real estate agents selling their foreclosures and helping homeowners secure more affordable payments.


Like many California credit unions, Patelco Credit Union ($3.6B, Pleasanton, CA) is grappling with an increasing number of foreclosures the past year with no signs that the trend will abate.

The cooperative is taking a proactive approach to managing foreclosures, focusing heavily on reaching out to members who may need financial assistance and closely monitoring the success of its REO sales, says David Luu, vice president of collections for Patelco.

“We do what we can to keep members in their homes and really use foreclosure as a last resort,” Luu says.

Patelco members are increasingly struggling with unemployment, which contributes to the foreclosure problem in the California region, which Luu says he expects to continue to worsen. The credit union has seen its REOs more than double in the past year as well as an increase in short sales, which mirrors the same trends other credit unions in the region are experiencing. Nationwide, the number of new foreclosures increased 7.2% to 228,098 in August from the previous month while the number of foreclosures sold dropped 23.8% in July from June, according to the latest statistics from Irvine, CA,-based RealtyTrac.

In the second quarter, about 12.5% of loans were either in foreclosure or had a late payment of more than 30 days, according to the Mortgage Bankers Association, which says mortgage delinquencies "show signs of worsening."Most credit unions are still trying to manage their REOs in-house, focusing on selling properties quickly but without undercutting the property value.

Patelco has been putting a lot of effort into trying to prevent a foreclosure problem from snowballing by sinking much of its efforts into home loan modifications to prevent foreclosures in the front end, Luu says.

Although Patelco members have a 15-day grace-period for paying their mortgages, the credit union reaches out to members who are only five days delinquent to try to learn about their financial situation and difficulties sooner and work with them on modifications. The credit union, which saw a peak in modifications in 2009, Luu says it extended more than $22 million in loan modifications in the past year. Its modifications are modeled after the federal Home Affordable Modification Program, or HAMP.

Patelco also works with agents to set the price and coordinate the sales of REOs. To make that more efficient, Patelco keeps a score card of agents' performances, treating them like employees, to keep track of the agents who move homes quickly at the greatest value. “You really have to have a good, competent agent to help you liquidate the property,” Luu says.

In the second quarter of 2011, credit unions saw loan delinquency improve both quarter-over-quarter and year-over-year to 1.54%, according to Callahan & Associates' Peer-to-Peer data. Patelco, which being in a foreclosure-heavy area of the U.S., saw a significant spike in delinquencies during the recession and housing market decline, but has significantly pared down delinquencies since the start of the year.


Click on graph for larger image |  Source: Callahan & Associates' Peer-to-Peer data




Sept. 26, 2011


  • Patelco was able to give me a temporary loan modification from 2009 - 2011. Since then, I've been trying to re-apply for it but was denied two times. My financial hardship remains the same and in fact, now my employer has announced that they are facing financial hardship and have to sale the organization. A lot of good folks are going to be laid off, including myself, yet Patelco will not help me.