Credit Union Homeowners Affordability Relief Program

The following is an article reprinted with permission from the upcoming Winter 2009 edition of The WWR Letter:

Credit Union Homeowners Affordability Relief Program

By: David A. Wolfe, Associate

In November 2008, the National Credit Union Administration (“NCUA”) announced a new program designed to provide assistance to credit union members who face delinquency, default, or foreclosure on their mortgages and to use low-interest, short-term loans to add liquidity and confidence to the system. In an effort to include borrowers in the “broader government efforts to mitigate the housing and credit market dislocations,” and break the repeating cycle of delinquency, default, foreclosure, and diminished home prices, the Credit Union Homeowners Affordability Relief Program (“CU HARP”) is a two-year, $2 billion program intended to increase homeownership affordability, keep borrowers in their homes and limit the costs of mortgage defaults to the credit unions. This program will lower monthly mortgage payments for struggling low-income and moderate-income credit union members and provide interest rate relief to an estimated 10,000 households. Through the program, the NCUA will funnel federal loans to credit unions through the Central Liquidity Facility (“CLF”) by allowing participating creditworthy credit unions to borrow money at a discount from the U.S. Department of the Treasury at lower rates than those available through private sources. The CLF will provide advances to eligible credit unions to invest in a CU HARP Note guaranteed by the National Credit Union Share Insurance Fund (“NCUSIF”) for a term of one year at a fixed rate, renewable for a term of one year. The credit union, in exchange for the reduced likelihood of borrower default on the mortgage, would be required to match the rate break, doubling the benefit and temporarily lowering monthly mortgage payments for struggling homeowners. More specifically, the credit union would agree to modify loan rates and/or reduce the principal balance for primary-residence home mortgages that are 60 days or more past due, or where the credit union documents a mortgagor’s hardship, (i.e., such as reduced income or illness, or death in household impacting household income or resulting in significant medical expenses, etc.), and have a loan-to-value ratio greater than 80 percent. The criteria for a member’s mortgage modification are:

•  Target payment-to-income ratio of 31 to 38 percent
•  Minimum mortgage interest rate of 3 percent
•  Maximum household income of 150 percent of medium income for the ZIP code, and
•  Verified owner occupied residence.

The NCUA would be able to impose standards and requirements for participation to ensure credit unions act as “responsible stewards” of public funds and NCUA examiners and participating state regulators will verify that the benefits are provided to eligible homeowners. Borrowers would also have to meet eligibility standards like income level, default history or danger of default and required occupancy on the properties in question. CU HARP gives credit unions six months to modify loans and the maturity of the modified loan could be extended to 40 years. CU HARP will be administered at no cost to taxpayers and loans are made to credit unions on a fully-secured basis, with all advances to be repaid with interest. The application deadline was extended to December 29, 2008, and funding is expected to begin in early January 2009.

David A. Wolfe is an Associate in the Bankruptcy and Legal Action Recovery departments of the Detroit office. He can be reached at (248) 362-6142 or dwolfe@weltman.com.