Two Credit Unions Helping to Clean Up the Subprime Mess

With headlines of subprime abuses flooding the front pages of newspapers recently, how are credit unions stepping up and helping members who are struggling with their mortgages?


It is nearly impossible to make it through breakfast without hearing or reading the word “subprime” in the news somewhere.

“New Home Market Gets Hammered” ( – 7/26/2007)
“Foreclosure Rates Could Soar” ( – 7/26/2007)
“States Aim to Stem Tide of Home Foreclosures” (WSJ – 7/23/2007)

This crisis has touched almost every part of the U.S. economy. Mortgage companies, financial institutions, homebuilders, the stock market, hedge funds, investors, and homeowners have all been significantly affected. Mortgage brokers have gone bankrupt, hedge funds have liquidated, and hearing upon hearing has been held by Congress.

Foreclosure rates are skyrocketing in certain states that have been hit the hardest: California, Florida, Nevada, and Arizona. Delinquencies are high and financial institutions are setting more and more aside for loan losses. How did the mortgage industry and all of its derivatives get into this mess? One reason is that borrowers were often unaware of the terms of their mortgages due to confusing disclosure forms and misleading lending practices.

They Don’t Know WHAT?!

In “Improving Consumer Mortgage Disclosures,” a study released by the Federal Trade Commission, 36 interviews were conducted with individuals who have recently gone through the mortgage process, and some interesting findings are revealed. Current mortgage cost disclosures failed to convey the key mortgage costs to many of the consumers, underscoring that consumers are often unaware of the terms they were agreeing to.

What exactly were they not able to discern from their mortgage agreements?

Prepayment Penalty Amount


Total Up-Front Cost Amount


Loan Amount


Monthly Payment


One-fifth of those who responded could not even identify the amount they would be paying every month. Unfortunately, many individuals were talked into products they could not afford, enhanced by very low teaser rates, or other hidden terms. How can credit unions step in and help members and non-members keep up with payments and avoid foreclosure?

People Helping People

Two credit unions are being proactive in helping members through these difficult times.

Landmark CU ($1.0 billion in New Berlin, WI) offers two specialized mortgage products; one for low to moderate-income individuals. The product aimed at those needing to refinance out of their subprime loans that are about to explode is called the Rescue Refinance Home Loan. It features a 6.75% base rate fixed for five years and then is adjusted annually with an annual cap of 1% and a lifetime cap of 6%, so these ARMs are unable to unexpectedly jump. With structures such as these, homeowners in trouble have the opportunity to salvage their home and credit scores.

Local Government FCU ($708.2 million in Raleigh, NC) is trying to be more proactive in the way they identify the members that have possibly been affected of may fall into the subprime trap. They are mailing 20,000 pieces to targeted members to offer assistance if any are in uncomfortable mortgage situations. Once a member comes to them for help, the main option available is a five-year ARM product that has a base of 6.75% and is subject to change every five years. Increases are limited to 1.5% each 5-year period and 4.5% over the life of the loan.

These examples are some of the ways credit unions are helping members through these turbulent times. The subprime crises offers a great opportunity for credit unions to create a greater presence in the national spotlight and improve the lives of many Americans.




July 30, 2007


  • What are these Credit Unions doing about LTV? Our values in Las Vegas have dropped 15-20% in the past 12 months. We too are trying to refinance members out of ARM loans and are often coming up with LTV''s greater than 100%.
    Doug Clinton
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  • I applaud these credit unions for proactively serving their member''s. However, I do also question what they are doing with LTV & underwriting guidelines. Are these loans for distressed borrowers trying to keep their homes? Are they requiring PMI over 80% LTV? What about minimum credit scores to qualify? Max DTI ratio? I have found in our market that helping members out of the sub-prime mess often entails adressing the original & ongoing problems that led them to sub-prime in the first place - buying more house than they can afford with bad credit & limited or no down payment. To truly justify the title to the article I would like more information on how these credit unions are dealing with the tough issues of sub-prime refinances and not just what product they created.
    Victor Petroni