Credit Unions Testify at House Banking and Financial Services Committee (Misc News: March 17, 2011)
Leaders from E&A CU and Gerber FCU testified on the 90-day foreclosure workout period at the State House Banking and Financial Services Committee hearing on March 16.
The House Banking and Financial Services Committee chaired by Rep. Marty Knollenberg, R-Troy, held a committee hearing to discuss with credit unions and banks the 90-day foreclosure workout period created by Public Act 29-31 of 2009. David Brandt, Chief Financial Officer for E&A CU, and John Buckley, Chief Executive Officer at Gerber FCU, testified on behalf of credit unions. During Brandt’s testimony, he discussed how expensive foreclosures are on the lender and that the current process runs a minimum of 13 to 19 months during which time the borrower does not make payments on the mortgage. The lender pays the property taxes, the insurance on the house, attorney fees, publication costs, and the labor involved with sending notices and attempting to contact homeowners. Once the lender takes possession, the process becomes even more expensive. It is now the norm for the borrowers to remove plumbing, lighting and other fixtures.
Click here for the Brandt's complete testimony.
More than half of their foreclosed properties could be sold only to cash buyers as the damage left by the homeowner disqualified the home for traditional financing. Brandt provided the example of a home that had a principal balance of $105,000 at foreclosure, but, after the borrower had destroyed the floor coverings, walls and removed the sump pump leaving over a foot of water in the basement, the credit union only netted $20,000 after costs associated with the sale.
Buckley echoed what Brandt told committee members, informing them that his credit union had 40 homeowners face hardship in the past three years with 27 foreclosures taking place. During that same timeframe they only had one house redeemed. He further let committee members know how expensive foreclosures are and that most properties are trashed in various levels from garbage and old furniture to many taking everything including electrical boxes, furnaces, water heaters, and plumbing fixtures. Of the 27 homes his credit union received back only two were left in decent condition.
Both emphasized that, although lending is risky, no financial institution goes into the lending process thinking they are going to make a bad loan that leads to a foreclosed property. Generally, somebody loses a job, gets a divorce or has some other hardship placed on them, keeping the homeowner from paying their mortgage. They stressed the need to shorten the redemption period telling members that the sooner the financial institution can get the foreclosed property off their books, the faster they can sell the home, which in turn can improve neighborhoods and property values and ultimately loosen up capitol so the credit union can lend again. They recommended extending the 90-day foreclosure workout period on the front end while shortening the redemption period by at least 90 days on the backend striking a fair balance between financial institutions and borrowers.