Help Underwater Members Before Mortgage Rates Rise

Credit Unions can come to the rescue with a refinance-to-modification option.

Although mortgage rates are still at historic lows, they’ve recently risen about a point and are expected to continue rising for the foreseeable future.

That means the wave of refinancing that dominated the industry during the last several years is winding down.

Still, there’s a substantial group of homeowners who would benefit by refinancing: people with houses that are “underwater” (they’re worth less than what’s owed on them).

Purchased at peak prices and interest rates during the boom, these properties have declined in value and owners have been unable to qualify for refinancing under standard lender guidelines.

The U.S. Treasury’s Home Affordable Refinance Program assists homeowners in this category whose mortgages are owned by Fannie Mae or Freddie Mac. But what about the rest?

Your credit union probably retains a number of these mortgages in your portfolio. You’re not particularly worried about them because members consistently make their payments. Still, these mortgages represent a significant risk to your credit union.

Even if the member is paying a higher interest rate, the risk of default is greater. Unemployment remains a persistent problem across the country, and your member with the good track record could be just one downsizing away from a default.

Your credit union is also missing an opportunity to help members improve their financial situations and reaffirm their loyalty through more business and glowing referrals.

How can you help these members take advantage of low mortgage interest rates before it’s too late? And how can you reduce your exposure to the risk they represent?

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