Short Takes and Teases for A Friday

Ever seen those inane television 6 o'clock news "teases" that seemingly come on while you're around the dinner table? Stuff like, "A new study says a popular food may kill you, and you may be eating it now ... we'll have the story at 11." Well, this serving of CU Communicator won't kill you (and hopefully it's not inane), but it is going to leave you hanging just a bit. There's good stuff happening out in NC CU Land, and I thought I'd give you a peek at what's happening (without playing spoiler).

First, a short take ... as you stock market watchers know, the Dow gave up more than 300 points yesterday ... part of a rout in the global equity markets. The culprit, in part? Our old buddy, the subprime lending issue. Of course, daily movements in the markets are usually about expectations, not reality. Still, 300+ points is a big number on one day. Which leads us to our first tease ...

Foreclosure is about reality, not expectations ... Kudos to State Employees' Credit Union, which is about to roll out a big number of its own very soon, perhaps even today. About six weeks ago the credit union rolled out some products aimed to help members trapped in risky subprime mortgages. Well, SECU is working up a press release that will share the dollar figure of mortgage refi's in these products so far.

How big a number is it? Well, there's six zeros at the end, and two crooked numbers leading the train. Like I said, it's a big number.

Better than "the big number" though is the fact that hundreds of families in NC will keep the keys to their slice of the American Dream in their pockets, and won't have to turn them over to an auctioneer. Hundreds helped - in just six weeks.

Again, kudos to SECU for really being about "people helping people." If you've taken a pass on this issue so far and you could be helping, you might want to set aside some time today to take a look in the mirror.

Tease #2: another credit union that gets it ... Carolina Postal Credit Union. In this space last week, we chatted about CPCU's Priority Payday Checking, and the credit union's intense focus on serving the member, not the bean counters. Yesterday, the Marketing Diva of CPCU (and world renown) blogged an update about the product ... and the credit unions that are looking at adopting this program.

What the Diva won't tell you (yet) is that the credit union is about to roll out one heck of a great product and promotion. It's one part loan, one part slang, and one part duct tape (I'm not kidding). Best of all, it's a great fit with their members. More to come ...

Tease #3: are we having fun yet? Wow, the folks at Members Credit Union sure look to be! The credit union is putting a new spin on its annual "Football Pick 'Em" contest this year. Click here to go to the Credit Union Warrior blog to view some videos about "Football, not Futbol."

The CU Communicator especially enjoyed Office Destruction and Face Paint ... although the keen acting abilities of CEO Jack Braswell are on display in Management Meeting.

More on how the credit union plans to use these videos next week on CU Communicator. In the meantime, be careful what you eat for dinner. :)

Of Starfish and Subprime Mortgages

I’m dusting off the soapbox and getting ready to climb on it here on a Thursday morning. For a random credit union league PR lackey like me, this is dangerous turf for two reasons. For one thing, the League is an organization that listens to its member credit unions before weighing in with an opinion – in effect, it’s your opinion that guides our priorities.

Secondly, I am writing to a credit union audience that is quite a bit smarter than me.

But the subprime mortgage story I'm hearing in the media has me a little ticked and I just can’t help myself. So here we go.

I recently heard a speaker reference the Loren Eiseley starfish story, which is taken from his 1978 book, The Star Thrower. In the starfish story, an older gentleman is walking the beach that is covered with hundreds of starfish washed up by the tide. He soon encounters a young man who is tossing the starfish one-by-one back in to the ocean. When the young man tells the older man he is saving the starfish, the old man remarks that with so many starfish littering so many miles of beach, the young man can’t possibly make a difference.

Upon hearing this, the young man picks up yet another starfish, tosses it into the sea and says, “It made a difference to that one.”

The starfish story reminds me of the unfolding wreck in the subprime mortgage sector. If you have not heard the specifics, the folks at the Center for Responsible Lending (among other organizations) have been researching some of the subprime mortgage products that some lenders (with Wall Street financing) have been using to make a ton of money the past few years.

Among these products is a 2/28 ARM mortgage that many customers in the subprime market have gotten the past few years. The loan includes a sexy “teaser rate” that allows people to buy bigger homes, often with little or no verification of their ability to repay the loan when the loan payment increases after two years. According to the CRL subprime loans, including the 2/28 ARM, accounted for about a quarter of mortgage originations last year.

As you might imagine, the 2/28 ARM this is a great way for mortgage companies to get rich at the expense of borrowers who would otherwise build more equity in their homes with a fixed rate mortgage. According to the CRL, this 2/28 ARM approach and its frequent flipping approach works (especially for the lender) if the housing market is appreciating, as it has done the past few years. People can count on having enough equity in the home for the mortgage company to re-finance the loan (guess who ends up with the equity …).

The problem comes in to play when the housing market cools down. People who previously could re-finance their loan or sell their homes instead get trapped in the mortgage, have their interest rate (and payment) adjusted violently upward, and end up getting foreclosed upon. According to the CRL, more than two million families nationwide are at risk of foreclosure in the next couple of years.

Two million families!

That two million families would risk losing their homes because of some greedy people is bad enough. But worse yet … and this is what really has me steamed … all the media focus has centered on the financial problems of the lenders who created the situation in the first place, with scant mention of the real people who face a crisis they may not even be aware of yet. The borrower’s side of the story remains largely untouched.

I’ve been to two meetings where the CRL presented this information to credit union people here in NC. It’s safe to say that, true to our “people-helping-people” philosophy, some credit union leaders are starting to grapple with what (if anything) can be done to help people who are caught in this mortgage trap.

I’ll leave those discussions to others, but it does occur to me that this is an opportunity for credit unions to use the PR process to tell the story with an eye to helping people who are in these terrible loan products.

I suggest that credit unions start talking about this issue with local reporters from the consumer standpoint. Let others focus attention on the impacts on Wall Street – this is a Main Street issue, and people where you live want and need to know the impacts of this story. Here are a few ideas about how you might approach this from a PR perspective, and why you should consider raising the issue:

• The word “subprime” sounds like a gristly piece of steak. It’s a depersonalizing label. This is a story about working families and people who live in your city. Be their advocate.
  
• Draw distinctions between your subprime lending program and those of the bad guys. You make loans to help people realize the dream of home ownership and build up assets. The bad guys make these exotic loans so they can build company and shareholder assets. In short, don’t expect people to know you’re different – it’s your job to tell them.
  
• On that same note, you might also outline how your credit union helps someone qualify for a mortgage (if they are not eligible at first).
  
• Perhaps your credit union has already refinanced a member out of a bad mortgage and they would be willing to participate in the story. Or, you could always have a loan officer share anecdotal information about who these subprime borrowers are and what you’re telling them.
  
• You can alert people who may be at risk that they may be able to get into a more traditional mortgage product. This is especially true since, according to the CRL, many people in these products could have qualified for a prime loan.
  
• You can gently remind people about the advantages of doing business with a local financial service provider.
  
• If we leave this story up to the banks, they’ll muck it up with bar graphs and gross domestic product projections.

Finally, please think about what your credit union can do to assist people in these mortgages. With the CRL estimating that quite a few of these people will have as much as 120% loan-to-value in these mortgages, you may not be able to do anything for many folks … but like the young man on the beach tossing starfish into the sea, it will matter to the people whom you can save from the rising tide of foreclosures.

My soapbox is now safely tucked away. Thank you for reading this.