Understanding Member Challenges Helps Stamp Out Spring Delinquency

Credit unions’ willingness to consider the reasons behind modification requests can lead to a healthier loan portfolio.


Credit unions of all sizes are now familiar with the constant monitoring and awareness required to create workable mortgage situations for both lender and borrower. Although regions, assets, and business models vary, the credit unions that best understand their members find themselves in the most favorable market positions.

Economic hardships and complicated financial situations face members and credit unions, who are working to recover ground lost during the recession. But gains are being made. The delinquent percentage of total loans for credit unions in the first quarter has dropped to 1.76% from more than 1.8 % at the end of 2009, ending an upward trend. According to TransUnion, national mortgage debt per borrower also decreased 1.39% from first quarter 2009 levels.

Indicators of recovery are surfacing, and credit unions are utilizing their own regional quarterly data to draw correlations between their members’ hardships and the ultimate effects of those hardships on loan performance and delinquency.

In March, a California credit union reviewed its 275 delinquent loans that were more than 60 days past due, examining the root cause of each delinquency as described by the member and looking for insight to help members foresee and adjust for these changes.

In all, 41% of the delinquencies were attributed to a job-related issue, something many credit unions have come to expect. Bankruptcy came in second at 25%.

In these respects, members nationally are still recovering from the lingering effects, such as unemployment, of the recession. Job issues and bankruptcies were also the top causes for delinquency in December 2009, at 45% and 22% respectively.

Less frequent yet still substantial factors the California credit union discovered in its survey included illness and divorce, which extend beyond all regional boundaries. At 4%, illness remains unchanged from December 2009, while divorce dropped from 4% to 2%.

Data from a September Callahan Report demonstrates the impact factors such as illness and medical bills have on delinquency and bankruptcy. In 2007, 62.1 % of personnel bankruptcies were linked to illness and medical bills. In 38% of cases, lost income from illness played a role.

This year, so-called “straw purchases,” loans taken out in one name but forwarded to neighbors, children, etc., were cited as the reason for 4% of delinquencies during the first quarter.

Whether the cause of the hardship is medical, employment related, or of the borrowers own design, many credit unions turn to financial education as a corrective tool, teaching their members to budget and prepare for the challenges that surround their particular region.

A credit union’s ability to increase financial literacy is imperative in continuing this downward trend in delinquency. A zogby survey commissioned by TransUnion’s zendough.com shows only 57% of households make or stick to a monthly budget. So although credit unions have done more than their competitors to realign borrowers’ spending habits with a sustainable budget, there is still more work is to be done.