Ann Browner’s job was cut back and she lost $15,000 a year in income. She lives in a mobile home on an acre in Grants Pass and had hoped to retire there in ten years, but she awoke from that dream to a financial nightmare. Living alone with no other source of income, Browner had payments not only on her house and car, but also on high interest credit card debt and a loan she had taken on to pay for her daughter’s wedding.

Browner—her real name has not been used to prevent a harassing ex-husband from locating her—knows all about debt, albeit from the other side of the desk. She works in collections for a company that focuses on federally-backed student loans. The core of her personal code of ethics has been to pay her debts on time, every month.

“I was looking at putting the rest of my bills with a consumer credit counseling company because I didn’t know what I was going to do. I didn’t want to start getting behind on payments…I did not like the position I was in, it was scary,” Browner admits.

A friend told her that the credit counseling company could perhaps consolidate her credit card debt and personal loan. Her home loan was with a commercial bank, her auto loan with a credit union. Browner decided she’d start with the auto loan, to see if she could get the interest lowered, to perhaps knock $100 off a $313 a month payment.

Much to her surprise, Northwest Credit Union looked at her overall debt situation, not just the auto loan she had with them. The credit union paid off the debts she had with her other creditors and consolidated it into a single new loan.

“I went in there and it was like God’s will, everything just fell in place… They saw the jam I was in, they saw I had always made my payments on time… I came in every month and paid my bills in person. They knew exactly who I was,” Browner says.

For anyone who has attempted to negotiate a debt reduction with a national mega-bank, Browner’s experience may come as a surprise. The national lenders tend to look strictly at numbers and are often use call centers in India or the Philippines that require a long wait time and conversations with a dozen specialists before reaching a decision maker.

The root of the problem lies with corporate structure. Large commercial banks are profit-driven institutions set up to maximize earnings for shareholders who live outside of the communities served by their branch offices.

Credit unions, on the other hand, are non-profit member-owned banks, governed by a board of directors who are themselves members. All profits at a credit union are returned to the members. These members are simply individuals who deposit funds to, and take loans from, the credit union.

The credit union movement began in England and reached the United States in 1908, due primarily to the efforts of Massachusetts banking commissioner Pierre Jay, and Boston businessman Edward Filene. Best known today for the “bargain basement” model in department stores, Filene’s other socially-progressive innovations include a profit-sharing plan for his employees, allowing collective bargaining in his work force, and establishing a minimum wage for his female workers. Filene was also a founder of the U.S. Chamber of Commerce.

Two of the seven cooperative principles of credit unions are “Concern for Community” and “Education, Training and Information.” The creative approaches that credit unions are using to keep their members from losing their homes during the current recession are a natural outcome of these principles.

“We look at the character of the borrower: does he have the ability and the desire to pay and to keep the asset in good condition?” asks Helen Byrnes, President and Chief Executive Officer of Northwest Credit Union. The Portland-based Northwest Credit Union has branches in 15 counties statewide, including several in Southern Oregon.

It pays to develop a long-term relationship with your credit union.

“One man in particular, his wife died, he had five children, we bought his first mortgage and rented the home back to him. In this case, his entire equity is in this home, he’s lived in it for four or five years, it’s in immaculate condition… he’d always been an admirable borrower. To the extent that you can keep the original owner in the home until his circumstances improve: do it,” says Byrnes.

In the situations where the lender can vouch for the borrower’s character, altruism also makes good economic sense.“I’m really not that much worse off. I’d wind up owning the home anyhow and selling it on the market,” Byrnes adds.

The total cost of foreclosing on a home can be expensive for the lender, considering transactional costs, as well as upkeep and maintenance before it ultimately sells. In 2007, the federally-sponsored lender Freddie Mac estimated that the average cost of foreclosure was $60,000. Economist Lawrence Summers stated in a Financial Times article the following year that these costs typically run about one-third of the home’s value (as measured before the foreclosure). The societal cost, Summers added, can easily equal or exceed the total value of the home, because neighboring home values are forced down as a result.

While commercial banks were peddling sub-prime mortgages and other risky investments, credit unions were taking a more conservative approach to lending. Credit unions may not be as profitable as many commercial banks, but in the longer-term their conservatism has resulted in relative stability and solvency.

Northwest’s Byrnes says that there are two important reasons for the relatively high stability among credit unions in the current recession as compared to commercial banks. First, a risky loan to one member means all members—owners—are put at risk, so boards of directors and managers at credit unions have been more risk averse than those at large commercial banks.

Second, while each bank is regulated by a single federal agency, state-charted credit unions, such as Northwest, are regulated by both the National Credit Union Administration (NCUA) and by the state—the Department of Consumer and Business Services in Oregon. This dual regulation has led to more stringent rules for credit unions.

The numbers speak for themselves. According to the Federal Deposit Insurance Corporation (FDIC)—the agency created by Congress during the Great Depression to maintain stability in the nation’s financial system—180 commercial banks have failed since the beginning of 2009. In the same time period, 15 credit unions have failed, according to the NCUA.

At the end of 2009, 8,012 FDIC-insured commercial banks operated in the United States. That was roughly equal to the number of credit unions at that time—7,978 according to Credit Union National Association. This means that commercial banks are failing at 12 times the rate of credit unions.

The home foreclosure crisis began to affect Northwest Credit Union in January of 2009. Though Northwest owns many home mortgages, they have a larger portfolio of home equity loans, and it was there where members first came for help.

In selected cases where the member had positive equity in their home, Northwest has attempted to purchase the high-interest first and second mortgages from the commercial bank.

“We would actually wrap the first and second mortgage and create a whole new thirty-year fixed rate mortgage and in many cases reduce the person’s (total) payment,” Byrnes explains.

A reduced payment often occurs when the original loans were made at a higher interest rate or when the rate increased suddenly, as in an adjustable rate mortgage loan. The credit union or bank is then able to rewrite the loan at a lower fixed interest rate.

“We have created more than $10 million in modified loans where we’ve been able to do a temporary skip payment, a temporary interest rate adjustment, a temporary decrease in their mortgage payment. There’s also a large amount in the $10 million where we’ve totally rewritten the loan,” says Byrnes.

Feedback for this community lending approach has come in unexpected ways.

“We received a member comment card. It said, ‘The bank took my house, the bank took my boat, you are the only people who helped me keep my truck. God Bless you. –Tim.’ He’s living in his truck. At least he’s not living on the street. When you read this, you realize what a small thing can do to help a person,” Byrnes says.

While Northwest covers fifteen counties, Rogue Federal Credit Union operates in just three: Jackson, Josephine and Klamath. This has allowed Rogue to focus its efforts preventing foreclosures on a smaller area. The emphasis at Rogue has been on education and counseling and has been influenced by the partnerships they’ve forged in the past two years.

“We partnered with the Home Builders Association of Jackson County to create a program to help people understand, first of all, how to budget in crisis, how to prevent foreclosures by learning about loan modifications: what it was going to take for them to get through the loan modification process and how to negotiate with their creditors,” says Kerrie Davis, Community and Education Outreach Coordinator for Rogue.

This program is a series of three evening seminars and is open to everyone, not just credit union members. In addition to budgeting and loan modifications, a third seminar covers legal rights during the foreclosure process.

“We named the program ‘Building Hope’ because that’s part of what we wanted to do: to give people the hope that they can get through this and come out on the other side. Our focus is on keeping families together.

“If that means saving your home, we’ll work with you to take the steps to get you to understand how to do that. If it means walking away from your home, then we’ll give you information about what’s going to happen and the fallout from it, and what your rights are going through that process,” Davis explains.

So far, the cumulative attendance at the bi-monthly seminars has topped 1,200. This is not surprising when considering another set of numbers. While 1 in 1,000 homes nationwide is in foreclosure, Oregon has double that rate. Jackson County has double Oregon’s rate, or 1 in 250, according to Davis.

The Building Hope program has been heavily publicized, thanks in part to ABC-TV local affiliate, KDRV Channel 12. Rogue, KDRV and the Jackson Home Builders are actively trying to introduce their program to other communities throughout Oregon. Even with all this publicity, Davis believes the need for this information far exceeds the program attendance numbers.

Home foreclosure in the 21st century carries a stigma as strong as that attached a century ago to unwed mothers. Many people, Davis says, are willing to speak with her one-on-one, but are reluctant to be seen in public for fear that a friend, neighbor, or family member may see them.

To respond to this emotional need, the Jackson Home Builders Association has added a unique ingredient to the Building Hope program. It began when Pete Cislo overheard a disturbing conversation. Cislo is the owner of Leave Your Mark, a construction business in Phoenix.

“I witnessed my neighbor and his family disintegrate in front of my eyes due to foreclosure. I asked myself, ‘What would I do if I was entering foreclosure? Who would I turn to?’ I also would consider the emotional impact on my family. Because what I watched was this young man call his dad a “flippin” failure. And I said to him, ‘Gee, I heard your kid and I want to talk to him.’ And the man said, ‘But I am a failure.’ The man was doing everything right until the construction industry tanked,” Cislo says.

Drawing on his own background, Cislo realized that emotional counseling was a missing ingredient in the mix. Before launching his construction business, Cislo was a counselor, most recently at Ashland High School.

Cislo is also a board member of the Jackson Home Builders Association. He convinced his colleagues to authorize a grant for professional counseling free of charge to families in foreclosure crisis.

“It’s a serious middle class crisis, especially for men… There’s that whole weight on the shoulder about ‘It’s my responsibility to provide for my family’ and all of that. The counselors told me, ‘You’re going to have a harder time getting them to come to this than for drugs, alcohol, sex, anything’,” Cislo says.

The counselors hired by the Jackson Home Builders have undergone special training in grief and loss, because these emotions and their complications, says Cislo, most closely resemble what people undergoing foreclosure experience.

As the original grant fund was running low, several churches and a private donor stepped up to add funding to the counseling program. What started out as a program for the community has developed into one of the community and by the community.

For many people facing financial difficulties, the most promising method of avoiding home foreclosures is securing a loan modification. A loan modification is simply a change in one of the terms of the loan: interest, term, or even the principal. Modifications can be temporary or permanent.

The loan modification process can take months and require persistence on the part of the borrower, who must be meticulous in documenting all communications. Large national lenders often send mixed and incorrect messages to borrowers. Faxes get lost, support staff are hired and laid off frequently, fine print changes. The Building Hope program delves into the details of this Kafka-esque process.

On a rainy Tuesday evening in March, Davis exhorts her audience of sixty to request a loan modification themselves.“Do not pay anyone to do loan modifications. Make the attempt yourself, then go to a HUD-certified counselor if you’re denied,” Davis tells the audience.

Many homeowners, intimidated by the process, fall prey to loan modification scams. Davis relates the story of a woman who paid someone $6,000—most of her savings—and called up the next day for an update only to discover the line had been disconnected.

The local HUD-certified counselor, who works at the non-profit ACCESS, helps homeowners negotiate loan modifications, but only if they’ve been denied by their bank. This service is offered free of charge. Getting the banks to respond to loan modifications has been difficult for many homeowners, but has become easier in recent months, in part, because of new legislation.

“Senate Bill 628 is a new Oregon law. It gives you the right to negotiate a loan modification prior to the sale of your home (by the bank). If they won’t modify your loan, they must show why not,” Davis explains.

Loan modifications are about to take on a new significance. According to Davis, there are 2,501 Adjustable Rate Mortgages (ARMs) coming due in the next three years in Jackson County alone, and many of them may be difficult or impossible to adjust.

Paula Young attended the Building Hope seminars and used the information she learned to secure a loan modification and keep her house. The Grants Pass nurse is a single mother of two. A year ago she found herself getting behind on payments.

“I was never late before on payments, but by doing that I could not provide for my family. I was eating at friends’ houses, living on soup, it was very hard,” Young says.

She was referred to a credit consolidation service, where she was advised to file bankruptcy, something she did not want to even consider.

“My creditors called, said ‘you’re late.’ One of them was Rogue. They said ‘come to Building Hope.’ I attended the class. I felt embarrassed to go to a class about how to manage my money. Everything changed from that night on. I felt like I was going through the same thing the other people were,” Young says.

After a year of countless phone calls and letters, Young obtained a loan modification that resulted in a monthly savings of $600. During the most difficult times, the Jackson Home Builders obtained gift certificates for her to buy food and gasoline when she had no money for either.

“I feel like a have a second chance. I’ve developed life-long friendships in the process,” Young says.

The difficulties persisted. Young still had credit card debt and an auto loan that threatened to undo all her hard work. She put her house on the market for two months last fall, hoping to secure the funds to wipe out all her debts. Davis convinced her not to sell and return for more help.

Since then, Young has cleared up her credit card debt after securing a lower interest rate. She’s currently attempting to refinance her auto, the last piece of her debt puzzle. After coming through her financial crisis intact, Young praises the Building Hope program.

“If people just knew that resources were out there, they could get the help they need,” she adds.

Young has not only kept her house, but kept her family intact. This is the real goal of the Building Hope program. Its motto is “It is terrible to lose a home, but tragic to lose a family.” Homes may come and go, but the unspoken tragedy of the current recession is that families frequently split up due to the stress of foreclosure. Credit unions, with their community focus, are helping keep families intact during this national economic crisis.

Daniel Newberry is a freelance writer living in the Applegate Valley. You can contact him at dnewberry@jeffnet.org

For more information on credit unions, visit these links:

http://www.creditunion.coop/

http://www.ncua.gov/

Move Your Money

While Wall Street mega-banks have given their executives multi-million dollar bonuses with taxpayer bailout money, community banks are failing, and thousands of families are losing their homes to foreclosure. The big banks, in many cases, have tightened—not loosened—their credit since receiving bailout funds.

Anger over this situation has led to a new grassroots campaign that empowers people to protest this situation. The concept is simple: move our money from large commercial banks to credit unions and small community banks. Begun as the brainchild of blogger Arianna Huffington, economist Robert Johnson, and filmmaker Eugene Jarecki, Move Your Money is a campaign to urge us to use our collective buying power.

This program was launched last New Year’s Eve with a short online video, located at www.moveyourmoney.info. One feature of this website is a listing of banks considered safe for opening accounts. A recent poll reported on this website estimates that at least ten percent of the population in the United States has moved at least some of their money out of large banks in protest since the current national financial crisis began.

The idea is simple and follows a long tradition of boycotts, albeit with a new twist. Move Your Money founders are especially adamant that we move our money out of the six institutions that hold 97 percent of the derivative markets: Citigroup, JPMorgan Chase, Bank of America, Wells Fargo, Morgan Stanley, and Goldman Sachs.

According to the FDIC, the five largest banks in 1994 held 13% of domestic deposits. In 2009, that number had risen to 38%. For many Americans, the biggest banks are now too big. The Move Your Money campaign gives new meaning to the phrase ‘Vote with your dollars.’

Building Hope Seminars

May 4 & July 13:

Budgeting in Financial Crisis

May 11 & July 20:

Steps to Preventing Foreclosure

May 18 & July 27:

Consumer Rights During Foreclosure

Classes are held from 6:30–8:30 both at the Rogue Federal Credit Union, 1370 Center Drive in Medford and at Boys and Girls Club, 203 SE 9th Street in Grants Pass. Call 541-858-7328 or 800-856-7328 to register or for more information.

Seven Cooperative Principles of Credit Unions

Voluntary Membership

Democratic Member Control

Members’ Economic Participation

Autonomy and Independence

Education, Training and Information

Cooperation Among Cooperatives

Concern for Community