MADISON, Wis. (7/21/10)--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 member requests for loan modifications. The requests are due to 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, the council said. Credit unions that engage in loan modifications have two advantages--the ability to retain loans within their portfolios, and the avoidance of foreclosure costs where loan modification proves to be less expensive, according to the paper, “Loan Modification.” Topics covered in “Loan Modification” include:
* The reasons for a formal loan modification policy, 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; * An analysis of the application for loan modification and accompanying documentation needed; * Factors associated with successful repayment of modified loans; and * Tracking of loan modifications and those that fall into the subset of TDR.
The paper also presents two credit union case studies. 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. For more information, use the link.