Today’s blog comes courtesy of Shari Storm, Vice President and Chief Marketing Officer of Verity Federal Credit Union. Shari is the author of the new book ‘Motherhood is the New MBA”, available at: http://www.amazon.com/Motherhood-New-MBA-Parenting-Skills/dp/0312544316/ref=sr_1_1?ie=UTF8&s=books&qid=1259855999&sr=1-1.
I think some of the financial crisis is due to the inability of numerous creditors to help consumers – not their unwillingness to help consumers – but the sheer logistical inability to help people.
A story to illustrate my point.
I bumped into a neighbor several months ago and he told me he was moving. He was moving because the creditor that held his second mortgage was foreclosing on his home. He told me about how the creditor that held the first mortgage had set up a modification with him but the second wouldn’t budge. He was incredulous because the home was no longer worth enough to cover a penny of the second mortgage, so forcing a foreclosure would leave the second lien holder with nothing. Then, to make matters worse, the night before the trustees sale; after he had sold most of his belongings and moved his family to a smaller apartment, the creditor with the second mortgage called and said they didn’t want to foreclose and they wanted him to keep living there.
I could just picture what happened. Back with this particular creditor, there was probably one collector who hadn’t yet got the message that each new delinquency requires a different solution. They probably weren’t thinking about the fact that foreclosing on a property that they would get no money from probably wasn’t the best move. They were simply following procedure. Three months of short payments = legal proceedings. Then, at the final hour, another person at the organization, maybe a manager, might have looked at the case and said, “This is a losing proposition. We can’t foreclose. It isn’t worth it to us.” And the collector may have said, “How am I supposed to know which ones to foreclose on and which ones to wait on?” and the manager probably said, “I don’t know.”
Add to all of this the likelihood that the creditor probably doesn’t have the proper legal documents to set up modified payments, the right staff to process loan modifications or a systematic way to ferret those requests which are simply consumers who don’t want to pay vs. those that really can’t pay.
So for months, my neighbor didn’t know what to do. He didn’t know if he should move back into his house or stay in his tiny apartment. And nobody at this organization felt comfortable advising him. He lived in limbo for months.
Multiply this by hundreds of thousands of people, thrown into a government program that still doesn’t have all the questions answered, include the NCUA Supervisory Letter that has made credit unions even more cautious about mortgage workouts and you get a pensive economy. Pensive economies don’t thrive. When consumers are uncertain about their futures, they do not behave in ways that are conducive to healthy economies.
Last year, Verity Credit Union set up a counseling system. We modeled it after Consumer Credit Counseling Services (where I used to work). We appointed four people to work on financial counseling. Their primary functions are:
1. Intake: They ensure that we have more information than our bill collectors have gathered in the past. They get paystubs, credit reports, house values, statements from all other creditors and monthly budgets. They also meet with each member in person and get the fullest picture possible of the member’s financial situation.
2. Assessment: The counselors look at the full financial picture of a member; taking into consideration job situations, living expenses and overall debt load.
3. Advocacy: The counselors help members negotiate reduced payments with their other creditors. The counselors provide a wide range of support; from helping people apply for food stamps to evaluating the decision to borrow against life insurance policies.
4. Recommendation: The counselors pass their recommendations on to a committee that includes senior management. Each case is reviewed separately and loan modifications are set based on as much knowledge as possible.
5. Commitment: The counselors meet with the “clients” on a regular basis (often monthly). We make it clear that our loan modifications are offered only to members who are committed to paying their obligations.
What the counseling program is able to provide is the quick transfer of information from the credit union to the consumer. The consumer knows within a week what their loan modification is (or is not) going to be. When a consumer has more information they are able to move through their lives more effectively. When they get immediate responses, they do not have to end up like my neighbor, spending his time and energy trying to figure out if he can keep a roof over his family’s head. Instead, he can focus on returning to the work force and becoming a producing member of our economy.
In turn, our credit union has a better understanding of our true loan exposure. Many of the people who use our counseling services have not been late on a payment yet. In fact, we encourage people to seek counseling before their first late payment. This can be painful for us in the short term. After all, we are taking loan impairments that we would not have necessarily taken without the program. But we believe that the more knowledge we have of our members’ situations, the better off we will be.
I like to think that our counseling program not only helps our members, but helps the economy on the whole. Here in Seattle, there are 93 people who have an advocate in the financial world and are surviving the downturn due in large part to the prompt and thorough assistance of their credit union.