Loan Modification is Focus of New Lending Council White Paper

CUNA Councils
July 21, 2010 | COMMENTS

Loan modification is an emerging development within the lending industry and the subject of a new white paper by the CUNA Lending Council.

Since the housing bubble burst in 2008, credit unions have faced an increasing number of requests for loan modification from members. This need has arisen from a number of factors, including persistent high unemployment rates, massive layoffs, and a slow housing market that makes it difficult for mortgage holders, many of whom have a documented hardship, to unload houses they can no longer afford.

According to the paper, “Loan Modification,” two primary advantages held by credit unions that engage in loan modification are the ability to retain loans within their portfolios and the avoidance of foreclosure costs where loan modification proves to be less expensive.

Among the topics covered in this paper are:

• The reasons for a formal loan modification policy and set of procedures and who should be consulted in their formation
• The difference between documented hardship versus negative equity
• Tools and options in loan modification
• A brief overview of the Home Affordable Mortgage Program (HAMP)
• The basics of determining Troubled Debt Restructuring (TDR) loans
• Analysis of application for loan modification and accompanying documentation needed
• Factors associated with successful repayment of modified loans
• Tracking of loan modifications and those that fall into the subset of TDR

Additionally, two credit union case studies are presented. One shows how the demand for different types of loan modification are handled by the same credit union in two contrasting regions of the country and the role that its financial counseling partner plays in facilitating the process and educating applicants. The other highlights best practices such as confirmation welcome calls, website education and resources for employees and members, and the role that critical adaptive thinking plays in determining a realistic affordable monthly payment.

CUNA Council members are entitled to complimentary copies of these and more than 200 white papers; non-members may purchase the white papers for a price of $50 per copy.

The paper is available online in the white paper section of each council site – select the “Lending” tab.