David Adams :: Blog

The MCUL has been aggressively looking for ways to address Michigan’s foreclosure crisis.  Early in 2008, an MCUL Foreclosure Response Team was formed to look at ways that the MCUL and Michigan credit unions might address the challenges created by the rising number of foreclosures.  Given the complexity of the problem, easy solutions are hard to find — and at times it seems like we keep running into brick walls rather than finding meaningful solutions.

On April 29, Realtytrac, a leading authority on nationwide foreclosure data, reported that U.S. foreclosure activity was up 23 percent from the previous quarter and more than 112 percent from the first quarter of 2007.  This equates to one in every 127 households being in some stage of foreclosure during the first quarter of 2008.  Michigan ranked 7th overall with one in 153 households and more than 29,000 homes in foreclosure during the first quarter of this year, up 24 percent from 2007.  However, Detroit continues to rank as one of the hardest hit metropolitan areas, ranking sixth worst with one in every 68 households in some stage of foreclosure.

The MCUL has identified several ways to assist credit unions in addressing the foreclosure crisis.  While we had hoped to form some kind of “cooperative risk fund” to help address the lack of affordable private mortgage insurance, it doesn’t look like that type of solution is anywhere close on the horizon.  We have just found it too difficult to find appropriate risk mechanisms to help form this fund.  Some of the challenges have included a lack of interest by the banking community, the lack of public funds at the state and federal levels and the growing financial stress on credit union balance sheets.  As a result, we have decided to focus our efforts in the following areas:

Economic Solutions Council — We will ask the MCUL CRI Economic Solutions Council to be the collaborative body that will help us identify appropriate areas of focus for credit unions’ individual and collective foreclosure responses.  This group will identify further activities in areas of adult education, counseling, support for MSHDA programs and possible new loan products that might help address higher-risk borrowers’ needs.

MCUF Foreclosure Research — The Michigan Credit Union Foundation (MCUF) has already commissioned Grand Valley State University to conduct comprehensive research that will be helpful for understanding the seriousness of the foreclosure crisis; the profile of those facing foreclosure; and possible remedies for financial institutions as well as other public/private groups.

Financial Education Council — Another group that reports to the CRI Committee is the Financial Education Council.  This Council will work with MCUL staff to develop and expand specific adult education and counseling programs that will prove helpful as a preventative strategy.

MSHDA “Save the Dream” Programs — The MCUL has already been actively involved in the creation and rollout of MSHDA’s “Save the Dream” programs as a foreclosure response tool.  We remain concerned about the heavy reliance on PMI and the limitations of this program, but we will continue to work with MSHDA and the State of Michigan to see if we can improve upon these programs so that they can reach more troubled homeowners.

Continuing Mortgage Lending Summits — During 2008, the MCUL has already held two separate Mortgage Lending Summit meetings.  These Summit meetings have brought together the leaders of Mortgage CUSOs and credit union leaders active in mortgage lending.  We hope that through regular follow-up meetings, we can identify new tools and strategies to help credit unions address the foreclosure crisis.

Active Support for Meaningful Legislation — The MCUL has been active in its support for federal and state legislative remedies that might help alleviate the mortgage and foreclosure crisis.  We will continue to do this.  The FHA Modernization and Housing Stabilization legislation sponsored by U.S. Rep. Barney Frank, D-Mass., is just one example.  We will continue to actively lobby for good solutions for credit union mortgage lending and foreclosure response activities.

We have known all along that this growing foreclosure problem would not have a simple and easy solution.  There may well be many different fronts from which we can work to meet this challenge.  I would encourage every credit union that is involved in mortgage lending to share ideas and actively participate in some of these forums.

Improving Michigan’s economy, which includes addressing the foreclosure crisis, is something that credit unions must be a part of.  It is good for members, good for the communities we serve and good for the future of our state and its people.

According to the Wall Street Journal, 70 percent of all economists now believe that the U.S. is in a housing-led recession.  The technical definition of a recession is two consecutive quarters of negative GDP growth.  Most of the really bad economic news has occurred in the current quarter so it will be a while before the economic numbers support the current speculation regarding the faltering economy.  Of course, as the old saying goes, “a recession is when your neighbor loses his job and a depression is when you lose your job.”  As the obvious pain settles in with Michigan job losses, falling home prices, a plummeting stock market, skyrocketing foreclosure and bankruptcy filings and general consumer angst, we don’t need the official economic data to convince us that things are pretty bad. 

Here are a few other pieces of cheery news from the State of Michigan.  We lead the nation in outward migration; for every person that moves to Michigan, two are leaving.  We also have 1.8 million people on some kind of public assistance — 18 percent of our population.  I also recently heard a top Granholm official suggest that about one-third of the rest of Michigan is only a couple of paychecks away from joining the ranks of those relying on public assistance for financial survival.  So where is the good news — or when will it come?  I have always said that the tougher economic times make credit unions more relevant.  They exist to help their members and communities get through difficult times.  Unlike banks and other businesses that really exist to generate a return for shareholders, credit unions exist to provide financial opportunity in good times and bad.  The term “not-for-profit” differentiates credit unions, especially in tough economic times. 

This housing-led mortgage crisis should have two facets for the credit union community.  The first is a no-brainer.  That is, credit unions need to help their members with mortgage modifications as well as all the other traditional loan and savings products that help members save money and borrow for their financial well-being.  The second facet of duty and opportunity may not be as obvious.  I believe that credit unions do have both a duty and an opportunity to help address the economic challenges faced by the neighborhoods, communities and states that they serve.  Again, this is what differentiates credit unions from other providers.  The other for-profit financial service providers invest in the community in order to create a better business climate so shareholder returns can be maximized.  The future business climate is also important for credit unions — but for very different reasons.  The not-for-profit motivation should lead credit unions to reach beyond the borders of their existing membership, because as the business climate is improved, members and future members will have jobs and increasing wealth that comes with strong housing markets, a strong stock market and a higher quality of life that comes with a strong economy. 

So, as the MCUL is working hard to address the housing and mortgage crisis in a coalition with the Michigan Bankers Association through the HOME SAVER Coalition, we have been working with MSHDA to create mortgage products that could help credit unions and banks take the necessary risks to help re-finance some of the 212,000 Michigan sub-prime mortgages that are on the verge of going through foreclosure.  This process is both difficult and frustrating.  The State is financially strapped.  MSHDA is challenged by a battered bond market, where it gets its funding for purchasing loans, and by a private mortgage insurance market that is also being slammed by losses.  The new “Save the Dream” loans authorized by the Michigan Legislature will offer some help to consumers via the banks and credit unions that will make the loans and then sell them to MSHDA.  But with a heavy reliance on private mortgage insurance, the practicality and reach of these programs is under serious doubt. 

The HOME SAVER Coalition continues to challenge MSHDA and the Granholm Administration to create a new HOME SAVER loan program that would have MSHDA or another state agency step in as a private mortgage insurer.  This would enable banks and credit unions to help some of the 212,000 sub-prime borrowers by making mortgage loans that could be re-financed and held in portfolio.  FDIC Chairman Ben Bernanke has testified that as much as 80 percent of these loans could be performing loans if rate adjustments could be made.  These are the borrowers that credit unions should want to help once they are qualified for membership.  Yes, these would be higher-risk loans and many credit unions are not positioned to take on more balance sheet risk in this economy.  But many credit unions with strong capital bases and well-managed assets are in a position to look beyond their current members in search of ways to strengthen the economy by helping to address this housing crisis.  Stay tuned as we hope to see some programs announced as soon as April that would help credit unions help their members and communities in this way.  The first step for every credit union interested in this effort is to become a MSHDA-approved lender.  The MCUL or MSHDA can help you through this process. 

And if any of us needed validation for the severity of the mortgage crisis, we got it when U.S. House Banking Committee Chairman Barney Frank, D-Mass., announced his plans on March 13 to introduce the FHA Housing Stabilization & Homeownership Retention Act.  This proposed legislation is mirrored by a similar plan supported by U.S. Senate Banking Committee Chairman Christopher Dodd, D-Conn.  The MCUL and CUNA are extremely likely to not only support this legislation but work hard to get it quickly passed.  At least initially, President Bush has expressed a reluctance to support this kind of proposal but many feel that, in an election year and given the severity of the problem, political pressure will be intense on the President and reluctant lawmakers to support this proposal. 

Remarkably, the Congressional proposal is extremely similar to the proposal crafted by our HOME SAVER Coalition.  The one big difference is that the national program would be dramatically larger in scope, provide far more public assistance and would be far less risky for credit unions and other lenders.  The proposal would permit the FHA to provide up to $300 billion in new guarantees that would help refinance at-risk borrowers into viable mortgages.  In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay.  The existing lender or mortgage holder would have a cash payment and no further credit exposure to the borrower.  This could potentially refinance between 1 and 2 million loans — helping these families stay in their homes, protecting neighborhoods and helping stabilize the housing market. 

Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender (i.e., a credit union or bank), which would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay.  If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.  In addition to the first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (i.e., borrower flipping).  This plan would also provide $10 billion in loans and grants for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible.  Each state’s loan and grant authority would be based on the state’s percentage of nationwide foreclosures, so Michigan would get a healthy allotment.  These funds could be used by housing authorities (i.e., MSHDA), nonprofits and private-sector entities for the purchase and resale of homeownership housing.  These funds could be used by MSHDA or conceivably a non-profit organized and owned by credit unions for purposes of making special loans like the HOME SAVER loan program.  The MCUL will be working aggressively to find a way to tap into this grant authority to help credit unions expand their outreach to borrowers who need help.  Whether through MSHDA or through a newly formed credit union organization, the grant money could help credit unions reach thousands of borrowers to help them stay in their homes through credit union assistance. 

So while the MCUL works to support the passage of the Frank/Dodd legislation and also continue its work in Michigan through the HOME SAVER Coalition, the thing that each credit union can do is develop policy now to support these kinds of special mortgage lending programs with a portion of its assets.  I would suggest that well-capitalized credit unions allocate as much as 1 percent of their assets for this kind of mortgage program where the loan is held in portfolio with PMI coverage covering 20 percent of the loan for borrowers who have a demonstrated capacity to pay and for whom their LTV ratios are at least 80 percent or lower as a result of a discounted payoff to the existing lender.  The MCUL will work with state and federal regulators to assure that they support these efforts. 

Consider the power of a program like this.  With a 70 percent participation rate by well-capitalized credit unions, $250 million could be made available to help these borrowers stay in homes.  With an average loan amount of $125,000, some 2,000 homeowners could be helped.  The effect of fewer foreclosures would have a domino effect on neighborhoods and communities.  Additionally, if the federal legislation passes and credit unions are able to fund and sell FHA loans, the capacity within the Michigan credit union industry makes it conceivable that an additional 10,000 loans could be funded and sold to FHA through a program like this.  What a dramatic impact we could have on the housing and foreclosure crisis in this state! 

We will continue to work with the Michigan Bankers Association through the HOME SAVER Coalition.  Despite the banking industry’s attacks on the credit union industry, this crisis requires that we look beyond our differences in order to focus on a common challenge that is far greater than the decades-long feud between our industries.  The scale and reach of the banking industry is needed in order to have an impact that would be 10 times as great as what credit unions could do by themselves. 

So, the MCUL is encouraging action on three fronts.  First, that any credit union participating in mortgage lending by itself or through a CUSO become a MSHDA-approved lender as soon as possible.  Also, be ready to participate in an upcoming mortgage lending summit sponsored by the MCUL slated for Friday, May 2, at the Michigan Credit Union Center in Northville Twp. 

Second, become an FHA-approved lender and be ready to support the expanded FHA program that will hopefully be established as a result of new legislation in the coming months.  Third, set policy to participate in funding portfolio loans up to 1 percent of your assets subject to details that the MCUL will provide in the near future.  The MCUL will provide some model policy language in the coming weeks to assist with this. 

The credit union industry has always led the way in serving their members and communities during good times and bad.  The growing housing and mortgage crisis requires as never before that we meet this commitment.

According to the Wall Street Journal, 70 percent of all economists now believe that the U.S. is in a housing-led recession.  The technical definition of a recession is two consecutive quarters of negative GDP growth.  Most of the really bad economic news has occurred in the current quarter so it will be a while before the economic numbers support the current speculation regarding the faltering economy.  Of course, as the old saying goes, “a recession is when your neighbor loses his job and a depression is when you lose your job.”  As the obvious pain settles in with Michigan job losses, falling home prices, a plummeting stock market, skyrocketing foreclosure and bankruptcy filings and general consumer angst, we don’t need the official economic data to convince us that things are pretty bad. 

Here are a few other pieces of cheery news from the State of Michigan.  We lead the nation in outward migration; for every person that moves to Michigan, two are leaving.  We also have 1.8 million people on some kind of public assistance — 18 percent of our population.  I also recently heard a top Granholm official suggest that about one-third of the rest of Michigan is only a couple of paychecks away from joining the ranks of those relying on public assistance for financial survival.  So where is the good news — or when will it come?  I have always said that the tougher economic times make credit unions more relevant.  They exist to help their members and communities get through difficult times.  Unlike banks and other businesses that really exist to generate a return for shareholders, credit unions exist to provide financial opportunity in good times and bad.  The term “not-for-profit” differentiates credit unions, especially in tough economic times. 

This housing-led mortgage crisis should have two facets for the credit union community.  The first is a no-brainer.  That is, credit unions need to help their members with mortgage modifications as well as all the other traditional loan and savings products that help members save money and borrow for their financial well-being.  The second facet of duty and opportunity may not be as obvious.  I believe that credit unions do have both a duty and an opportunity to help address the economic challenges faced by the neighborhoods, communities and states that they serve.  Again, this is what differentiates credit unions from other providers.  The other for-profit financial service providers invest in the community in order to create a better business climate so shareholder returns can be maximized.  The future business climate is also important for credit unions — but for very different reasons.  The not-for-profit motivation should lead credit unions to reach beyond the borders of their existing membership, because as the business climate is improved, members and future members will have jobs and increasing wealth that comes with strong housing markets, a strong stock market and a higher quality of life that comes with a strong economy. 

So, as the MCUL is working hard to address the housing and mortgage crisis in a coalition with the Michigan Bankers Association through the HOME SAVER Coalition, we have been working with MSHDA to create mortgage products that could help credit unions and banks take the necessary risks to help re-finance some of the 212,000 Michigan sub-prime mortgages that are on the verge of going through foreclosure.  This process is both difficult and frustrating.  The State is financially strapped.  MSHDA is challenged by a battered bond market, where it gets its funding for purchasing loans, and by a private mortgage insurance market that is also being slammed by losses.  The new “Save the Dream” loans authorized by the Michigan Legislature will offer some help to consumers via the banks and credit unions that will make the loans and then sell them to MSHDA.  But with a heavy reliance on private mortgage insurance, the practicality and reach of these programs is under serious doubt. 

The HOME SAVER Coalition continues to challenge MSHDA and the Granholm Administration to create a new HOME SAVER loan program that would have MSHDA or another state agency step in as a private mortgage insurer.  This would enable banks and credit unions to help some of the 212,000 sub-prime borrowers by making mortgage loans that could be re-financed and held in portfolio.  FDIC Chairman Ben Bernanke has testified that as much as 80 percent of these loans could be performing loans if rate adjustments could be made.  These are the borrowers that credit unions should want to help once they are qualified for membership.  Yes, these would be higher-risk loans and many credit unions are not positioned to take on more balance sheet risk in this economy.  But many credit unions with strong capital bases and well-managed assets are in a position to look beyond their current members in search of ways to strengthen the economy by helping to address this housing crisis.  Stay tuned as we hope to see some programs announced as soon as April that would help credit unions help their members and communities in this way.  The first step for every credit union interested in this effort is to become a MSHDA-approved lender.  The MCUL or MSHDA can help you through this process. 

And if any of us needed validation for the severity of the mortgage crisis, we got it when U.S. House Banking Committee Chairman Barney Frank, D-Mass., announced his plans on March 13 to introduce the FHA Housing Stabilization & Homeownership Retention Act.  This proposed legislation is mirrored by a similar plan supported by U.S. Senate Banking Committee Chairman Christopher Dodd, D-Conn.  The MCUL and CUNA are extremely likely to not only support this legislation but work hard to get it quickly passed.  At least initially, President Bush has expressed a reluctance to support this kind of proposal but many feel that, in an election year and given the severity of the problem, political pressure will be intense on the President and reluctant lawmakers to support this proposal. 

Remarkably, the Congressional proposal is extremely similar to the proposal crafted by our HOME SAVER Coalition.  The one big difference is that the national program would be dramatically larger in scope, provide far more public assistance and would be far less risky for credit unions and other lenders.  The proposal would permit the FHA to provide up to $300 billion in new guarantees that would help refinance at-risk borrowers into viable mortgages.  In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay.  The existing lender or mortgage holder would have a cash payment and no further credit exposure to the borrower.  This could potentially refinance between 1 and 2 million loans — helping these families stay in their homes, protecting neighborhoods and helping stabilize the housing market. 

Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender (i.e., a credit union or bank), which would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay.  If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage.  In addition to the first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (i.e., borrower flipping).  This plan would also provide $10 billion in loans and grants for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible.  Each state’s loan and grant authority would be based on the state’s percentage of nationwide foreclosures, so Michigan would get a healthy allotment.  These funds could be used by housing authorities (i.e., MSHDA), nonprofits and private-sector entities for the purchase and resale of homeownership housing.  These funds could be used by MSHDA or conceivably a non-profit organized and owned by credit unions for purposes of making special loans like the HOME SAVER loan program.  The MCUL will be working aggressively to find a way to tap into this grant authority to help credit unions expand their outreach to borrowers who need help.  Whether through MSHDA or through a newly formed credit union organization, the grant money could help credit unions reach thousands of borrowers to help them stay in their homes through credit union assistance. 

So while the MCUL works to support the passage of the Frank/Dodd legislation and also continue its work in Michigan through the HOME SAVER Coalition, the thing that each credit union can do is develop policy now to support these kinds of special mortgage lending programs with a portion of its assets.  I would suggest that well-capitalized credit unions allocate as much as 1 percent of their assets for this kind of mortgage program where the loan is held in portfolio with PMI coverage covering 20 percent of the loan for borrowers who have a demonstrated capacity to pay and for whom their LTV ratios are at least 80 percent or lower as a result of a discounted payoff to the existing lender.  The MCUL will work with state and federal regulators to assure that they support these efforts. 

Consider the power of a program like this.  With a 70 percent participation rate by well-capitalized credit unions, $250 million could be made available to help these borrowers stay in homes.  With an average loan amount of $125,000, some 2,000 homeowners could be helped.  The effect of fewer foreclosures would have a domino effect on neighborhoods and communities.  Additionally, if the federal legislation passes and credit unions are able to fund and sell FHA loans, the capacity within the Michigan credit union industry makes it conceivable that an additional 10,000 loans could be funded and sold to FHA through a program like this.  What a dramatic impact we could have on the housing and foreclosure crisis in this state! 

We will continue to work with the Michigan Bankers Association through the HOME SAVER Coalition.  Despite the banking industry’s attacks on the credit union industry, this crisis requires that we look beyond our differences in order to focus on a common challenge that is far greater than the decades-long feud between our industries.  The scale and reach of the banking industry is needed in order to have an impact that would be 10 times as great as what credit unions could do by themselves. 

So, the MCUL is encouraging action on three fronts.  First, that any credit union participating in mortgage lending by itself or through a CUSO become a MSHDA-approved lender as soon as possible.  Also, be ready to participate in an upcoming mortgage lending summit sponsored by the MCUL slated for Friday, May 2, at the Michigan Credit Union Center in Northville Twp. 

Second, become an FHA-approved lender and be ready to support the expanded FHA program that will hopefully be established as a result of new legislation in the coming months.  Third, set policy to participate in funding portfolio loans up to 1 percent of your assets subject to details that the MCUL will provide in the near future.  The MCUL will provide some model policy language in the coming weeks to assist with this. 

The credit union industry has always led the way in serving their members and communities during good times and bad.  The growing housing and mortgage crisis requires as never before that we meet this commitment.

Forbes Magazine recently published its first annual “Misery Index” ranking metropolitan areas based on several criteria, such as the economy, violent crime rates, commute time, weather, etc.  If you haven’t heard, you know where this is headed — more bad news for Michigan.  Detroit ranked No. 1 and Flint was No. 3. 

Well, to borrow a football term, this is starting to feel like “piling on.” 

We know Michigan has been suffering from what many have termed a “one-state recession.”  We have the highest unemployment rate in the nation.  We’re near the top in mortgage delinquency rates and foreclosure filings.  There’s plenty of bad, depressing news to go around.  And yet, this is a time to be optimistic about the future. In fact, an optimistic outlook might be the most important remedy for Michigan’s problems. 

Have you ever been around someone who always complained about the weather or the economy or how much the credit union industry has changed or how tough it is to run a credit union?  Contrast that attitude to the person who is the opposite.  They might say, “I’ll take the snow over hurricanes or earthquakes any day.  Spring is just around the corner.”  The optimist is also saying things like, “We made a little money last year and we’re well capitalized.  I’m proud of the job our staff are doing.”  And on the economy, the optimist is overheard saying, “What a great climate for credit unions.  We have so many opportunities to help people who really need it.” 

In recent conversations with lawmakers in Lansing, I have heard three different lawmakers say the exact same thing.  They believe that a big part of Michigan’s problem is attitude.  That’s right — not the auto industry.  Not the budget.  Not taxes.  It’s our attitude. 

So in my President’s Report commentary this month — which I’m sure some cynics or pessimists will criticize as blind, useless optimism — I want to focus on challenging us as credit union leaders to think positively about the future.  We need to see the many opportunities that exist for our industry to not only be relevant but to be an important part of the answer for moving Michigan forward. Every good leader understands that people respond more to an enthusiastic, positive call to action than they do to a threatening tone such as, “We need to cut expenses and start making money or there will need to be changes around here.”  Yet there are occasions — especially in depressing economic times — we either knowingly or unknowingly migrate to a less-positive leadership tone. If you look at successful politicians, especially those in a presidential race, they always talk about change and they very craftily talk about how bad things are while still inspiring people to see positive things in the future.  John McCain is positioned to claim the Republican nomination for the presidency, but he stumbled in Michigan, in part because of his “straight talk” about jobs not coming back to Michigan.  Even if he was partially right, he should have focused on what he could do as President to bring jobs back to Michigan.  People want and deserve an optimistic, upbeat outlook. For credit unions, the opportunities for a positive message in tough economic times are numerous.  When looking at the situation through a positive set of eyes, the list of opportunities is lengthy.  Here are 10 examples of how challenges or threats can be turned into opportunities. 

The Housing and Mortgage Crisis — Credit unions are already helping their members with loan modifications in ways that other lenders wouldn’t consider.  The MCUL and CUNA are encouraging state and federal lawmakers to provide clearer guidance on the level of risk that credit unions can take in the area of serving existing and new members with consumer-friendly mortgage products.  Expect to hear more from the MCUL and the newly formed Home Saver Coalition (a consortium of banks and credit unions through the Michigan Bankers Association and the MCUL) about opportunities for expanding service offerings to help people get affordable mortgage financing to buy a home or stay in a home.  This is good for Michigan’s economy and is simply the right thing to do.  Nobody is better suited for this opportunity than well-capitalized, service-driven credit unions.

Job Skill Retraining — Programs like the Career Transition Program, a program sponsored by the MCUL’s CRI program and anchored by DFCU Financial (MW), provide credit unions with opportunities to help members with low-cost financing for getting the skills and training they need to re-employ.  About 40 credit unions have committed funds but many are not marketing the program aggressively.  This is the type of program that could do a lot of good for a growing number of households.  Again, credit unions are extremely well suited to make a difference with this program and, in the process, get some great public recognition for doing so.

Financial Education and Counseling — Michigan credit unions have always done a stellar job of supporting youth financial literacy efforts.  More than 45,000 students are reached every year through volunteer presentations in schools by credit union leaders.  Some 300 student-run branches also give young people an opportunity to learn more about basic finance.  But the opportunities are huge for expanding financial education, especially for adults.  The MCUL is expanding its staff support in this area to help encourage and coordinate credit union community education efforts around the state.  Scores of credit unions also provide counseling services through programs like Greenpath’s Accel program.  All credit unions should strengthen their commitment of resources to sponsor local-level education seminars on finance topics and to provide basic counseling services to members.  Consider the power of offering a free review of mortgage documents for members and non-members.  It would be a great opportunity to promote credit union membership and provide a valuable community service, helping consumers avoid the effects of predatory lending practices that have contributed to the current mortgage mess.

The P2P Economy — The February 2008 edition of Harvard Business Review showcased its list of “breakthrough ideas for 2008.”  At the top of the list was the P2P economy.  After describing the effect of peer-to-peer networks on the media industry (i.e., blogs, YouTube, file-sharing, etc.), the magazine suggested that, “a shock like the one that jolted the media is poised to strike other industries, perhaps more disruptively.  It is already being felt in financial services.  Start with the phenomenon of microcredit, the lending of small sums to, and then within, social groups at the village level in poor economies, with members collectively guaranteeing the bank’s loan.  Combine that with the power of a global digital network, and a new model for banking begins to take shape.”  This sounds an awful lot like the credit union model.  This kind of intellectual, high-level discussion should cause credit union leaders to wonder if we’re not in a great position to reinvent ourselves to meet some of these micro-credit “banking” needs through creative, collaborative programs.

Patronage Dividends — I’ve recently written about how impressed I am with the new application of an old credit union idea, offering year-end supplemental patronage dividends similar to those offered by DFCU Financial and Dow Chemical Emp. CU (MM).  This is a huge opportunity for credit unions that have excess capital.  The idea is simple: Be competitive throughout the year on rates and fees.  At the end of the year, plan to either reduce capital/assets modestly or break-even on ROA by offering a supplemental patronage dividend.  Tout this as the credit union difference and members/potential members will see this as a great reason to do business with the credit union.  Banks and other providers simply don’t operate this way.  At a time when credit unions are struggling to grow organically (without mergers), patronage dividends are a great way to encourage people to do business with the credit union.

Collaboration with Bankers — The recently-formed Home Saver Coalition formed by the MCUL, the MBA and the Michigan State Housing Development Authority (MSHDA) provides a great example of how two industries can disagree on a few fundamental points (such as the credit union tax exemption) and still find opportunities to partner in ways that are win-win for each industry and the customers/members they serve.  We might even find along the way that we have more in common than we have differences.  What could be next are opportunities to partner in areas of student loans, competing against captive finance companies and business lending by strengthening communications with state agencies whose funds could be more effectively leveraged through a bank/credit union coalition.

Touting the Credit Union Difference — Even in a very difficult budget climate for Michigan credit unions, the MCUL cooperative advertising program continues to build support.  In 2008 we had to step up the fundraising deadline in order to raise money for a spring advertising campaign due to the high cost of fall advertising associated with the presidential election.  In spite of the earlier deadline and the bottom-line pressures faced by credit unions, the campaign’s participation is already at a record-high level of 53 percent of credit unions, compared to 48 percent in 2007.  In the coming weeks, we hope these numbers will go even higher.  Whether done individually or through cooperative advertising, credit unions have huge opportunities to tout the credit union difference as part of our advocacy efforts.  In tough economic times, credit unions are more relevant than ever and we have to invest in marketing and communications to get that message across to members, consumers, community leaders and lawmakers.

Taking Advantage of New Powers — Thanks to the efforts of our Michigan credit union community and the MCUL, state-chartered credit unions have an unprecedented opportunity to expand their fields of membership, invest in CUSOs and seek new powers from an OFIS Commissioner who has the authority to approve “any power necessary to compete in the financial services industry.”  We are now seeing credit unions of all sizes exercising their ability to expand their fields of membership and offer new services to their members.  This is not the case for federal charters or state-chartered credit unions in other states.  Never before have Michigan’s state-chartered credit unions had this kind of flexibility.  The MCUL stands ready to advocate on behalf of the industry and credit unions individually in order to get the regulatory authority necessary to grow and expand.  Competition is fierce, but one of the great benefits of a trade association is its ability to contribute to a positive regulatory climate.  We have that in Michigan and we can all work together to make it even better in the future.

Leveraging the Credit Union Value Brand — In tough economic times like these, people are looking for value.  Discount retailers offering groceries, home improvement products and other consumer products are in high demand right now. This is also true in financial services.  Credit unions can’t always offer the best rate or the lowest fees but often they can.  Credit unions have a huge opportunity in tough economic times to pitch their “value brand” to consumers.

Membership Enhancements through Partnerships — Partnerships with service providers like AAA and Sprint give our industry the opportunity to offer exclusive credit union member discounts on products like auto insurance and wireless phone services.  CUcorp will continue to look for these opportunities and so should credit unions.  Generally, we bring more to the table when we do this collectively but whether it is done individually or collectively, we have good opportunities to create more membership enhancement programs that create a stronger value proposition for being a credit union member. 

The possibilities are endless.  But I do agree that the foundation for future success, especially in difficult economic times, is a healthy dose of optimism and positive thinking.  Credit unions are more relevant than ever and opportunities for collaboration and cooperation are all around us.  We at the MCUL/CUcorp look forward to identifying, prioritizing and seizing as many of these opportunities as possible.

Sir Edmund Hillary, the lanky New Zealand mountaineer and explorer who with Tenzing Norgay, his Sherpa guide, won worldwide acclaim in 1953 by becoming the first to scale the 29,035-foot summit of Mount Everest, the world's tallest peak, died this month in New Zealand.  He was 88.  In a recent interview on the Today Show, he said that one of the most satisfying things in life is to envision and then accomplish something that has never been done before. 

On the presidential election stump in Grand Rapids on the same day as Sir Hillary’s passing, presidential hopeful Mitt Romney described three priority challenges for the State of Michigan — first, addressing the housing crisis; second, improving the jobs climate; and third, doing something about rising energy costs.  All three represent huge mountains to climb and all will likely require ideas and solutions that have not yet been envisioned. 

What challenges loom ahead for the credit union industry?  Certainly, one comes to mind, one just as conspicuous on the nation’s economic landscape as Mount Everest is on the world’s topography — the nation’s ongoing mortgage crisis. 

Arguably, the credit union mission is two-fold.  First, it is obviously to serve our members.  But a second and equally important facet of the credit union mission is to reach out to non-members to invite them to benefit from the credit union idea.  Remember, 60 percent of Michiganians don’t belong to a credit union.  When credit unions began, it was solely about new member outreach — so that part of the mission hasn’t changed. 

Michigan’s housing and mortgage crisis is among the worst in the nation right now.  This is largely because our economy was already suffering from the loss of manufacturing jobs before mortgage lenders expanded the problem with sub-prime, variable-rate mortgages that have further added to the depression in home prices, the rise in foreclosure filings and an increase in mortgage loan delinquency rates.  Data provided by the Mortgage Bankers Association and RealtyTrac show that Michigan’s mortgage loan delinquency rate (8.34 percent) and foreclosure rate (3.07 percent) are the third-worst in the nation.  Regarding the 212,000 sub-prime mortgages in Michigan, the news is worse.  The 22 percent delinquency rate and 11 percent foreclosure rate rank Michigan as the worst state for delinquent sub-prime mortgage loans. 

The real question for credit unions — and commercial banks, for that matter — is do we want to attempt to climb this mountain of a problem and help solve a problem that, for the most part, neither credit unions nor commercial banks contributed to?  While it could certainly be argued that some banks (money center banks that own security firms and mortgage company subsidiaries) have contributed to the problem, most community banks, like credit unions, have not been a part of the sub-prime mortgage mess. 

On Dec. 6, the Bush Administration announced a plan that encourages lenders and servicers to voluntarily freeze interest rates on certain sub-prime mortgages for up to five years for borrowers who are current on their loans.  The rate freeze will apply to loans made at the start of 2005 through July 2007 and will cover loans that have been scheduled to rise to higher rates in 2008 and 2009. 

Numerous state and federal laws are being considered or enacted by Congress and state legislatures, including Michigan’s.  Most of these bills have the effect of freeing up additional funding for lenders who wish to take future mortgage risks, providing consumer protections and disclosures and providing for greater licensing and regulation of the mortgage lending industry.  

On Jan. 11, Governor Granholm announced what she called the Michigan Protocol to assist homeowners facing potential foreclosure.  This is a state-level equivalent of the Bush proposal with a loose, private-sector agreement on eight principles that may include voluntary rate freezes on some loans; lender commitments to reach out and help distressed borrowers; making progress reports back to OFIS; and working with the State to address issues related to abandoned properties and the effect on communities.  The governor also announced the addition of additional examiners in OFIS to more effectively regulate the Michigan mortgage industry.  Finally, she also referenced her “Save the Dream” program that includes legislative recommendations for expanding funding from the Michigan State Housing Development Authority (MSHDA) for both first-time, low-income homeowners as well as low-income households who wish to refinance from adjustable rate mortgages to fixed-rate mortgages.  The MSHDA authorizing legislation has not yet passed the Michigan Senate.  The other facet of the “Save the Dream” program is a Hotline and Web site to provide resources for those facing possible foreclosure. 

It is gratifying to see the national housing and mortgage crisis finally drawing the attention of lawmakers, the president and our governor.  But here is the problem: Because citizens would not likely support the notion of a bailout by federal or state government, the fixes are comprised mostly of preventative measures and voluntary programs that make for good public relations but will likely do little to address the problem. 

The real problem is that, despite the many complex reasons for the housing and mortgage crisis, real solutions are nowhere in sight.  One thing that virtually everyone agrees on is that the problem is bad and getting worse, and the spillover effects will affect all households and all financial institutions — not just those who contributed to the problems.  These many and varied remedies don’t address the tougher issue — how can the economy provide greater incentives for measured risk-taking by traditional lenders during an economic crisis of this magnitude? 

What Credit Unions Can Do 
The good news is that a lot is already being done by credit unions and other lenders for existing members and customers.  Many people are being helped with loan modifications, consumer information and financial education.  All credit unions need to make formal assistance plans a high priority for 2008 and 2009.  The multiplier effect of 350 credit unions helping their 4.4 million members in Michigan cannot be overstated. 

In addition to the individual efforts by credit unions, the MCUL, in cooperation with the Michigan Bankers Association, is in the process of forming the HOME SAVER Coalition. This will be a collaborative effort by Michigan’s depository institutions to address the crisis in three ways. 

First, plans are underway to create a HOME SAVER Loan Program that will work differently than anything else proposed nationally or in Michigan.  In its early conceptual stages, this program would encourage banks and credit unions to refinance certain mortgage loans for borrowers who can’t be helped by existing lending standards or legislative/regulatory proposals.  These would be nonconforming loans (likely unsaleable in the secondary mortgage market), offered to borrowers with as high as a 110 percent loan-to-value levels, with 30-year amortizing loans — but with seven-year balloon features, and offered to higher credit risk borrowers at near prime rates. 

The other critical dynamic is the creation of a shared “excess risk pool” that would serve as a private mortgage insurance buffer.  The intent is to seek some state funding to provide an incentive for the extraordinary risk-taking inherent in this program.  It is also understood that state and federal regulatory approval of this plan would also be critical.  Finally, only strong, stable financial institutions would be allowed to participate and only within reasonable risk parameters (i.e., no more than 1 percent of total assets).  The initial target is to help 10,000 households with $1.5 billion in mortgage financing in 2008 and again in 2009. 

Second, the Coalition hopes to coordinate and expand outreach efforts for informing and educating consumers with a HELPLINE and Web site that would pull together all existing resources (i.e., www.michigan.gov/savethedream) as well as new resources created by Coalition members.  An important activity will be the expansion of free community seminars and “Information Fairs” that will expand consumer financial education as a preventative solution to the situation. 

Third, the Coalition will identify necessary regulatory relief measures that can be acted on by state and federal regulators to help address the growing risks for financial institutions associated with their existing business, as well as the new risks associated with the HOME SAVER loan program. 

The MCUL will continue to support and assist with the formation and implementation of the Coalition.  Three credit unions have been identified as early participants in the formation process and were scheduled to meet with bankers, the MBA and the MCUL before the end of the month to take the next steps in forming the Coalition. 

Additionally, through the MCUL’s existing committee framework, credit union representatives will be invited to participate in the process of getting good credit union industry input channeled into this process.  All of these activities will be coordinated by an internal MCUL Mortgage Crisis Steering Committee headed by MCUL EVP Patrick La Pine. 

For Michigan credit unions wishing to be a part of this whole effort, the obvious first step is to expand your plans and activities to help your existing members and identify ways to reach out to your communities.  Don’t wait for the MCUL or anyone else to present a formal program.  Your innovations and good works make a huge difference. 

Secondly, get involved by offering to serve on one of the three committees that will help gather credit union input for this process.  These include the Community Reinvestment Initiative’s Financial Education Workgroup, the CRI Economic Solutions Workgroup and the State/Federal Issues sub-committees of the MCUL Governmental Affairs Committee. 

Finally, stay-tuned and start laying the groundwork for how your credit union might participate in this HOME SAVER loan program with up to 1 percent of your credit union’s assets. Details will be forthcoming but CEOs and boards of directors should attempt to take on a willing attitude to dedicate some resources to this program. This unprecedented example of credit union/bank cooperation with some assistance from state funding will be an example of something that has never been done before — or at least not in recent times or at this level.  As this Coalition takes shape, you will also be asked to join as a member to lend your support. 

Credit union as well as bank officials will certainly ask the question, “Why should we help address a problem that someone else created?”  The answer should be our responsibility to our state and the communities we serve, as well as the benefits associated with helping to create a more positive (less negative) business climate.  Doing nothing or doing little should not be options in this situation.  For credit unions, the relevance to mission is even greater.  Credit unions exist both for their members and for the future members who can benefit from our good works.  People need our help and we should be up to the task of giving it to them. 

The goal is to make a meaningful contribution to the problem, not to solve it entirely.  The people we will help with this program will not be those who are in too deep over their heads to be helped or those who can be helped from their current lenders/servicers through the voluntary programs already announced.  The target is a group of individuals who are in the middle tier, those who can make it, provided they get a legitimate helping hand. 

Just as Sir Edmund Hillary described his feelings upon the first-ever ascent of Mt. Everest, the Coalition’s future members will take great satisfaction in knowing that they envisioned and accomplished something that had never been done before, especially given the societal benefits and the impact on individual lives.  The stakes are high and the capabilities of Michigan’s credit union and banking industries can make a real difference as we try to address these unprecedented challenges.