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Recent Headline Stories in the News

Recent news headlines have highlighted the turmoil in the world financial markets caused by the demise of Lehman Brothers, the seizure of IndyMac Bank, the U.S. Government bail-out of mortgage giants Fannie Mae and Freddie Mac, the hasty merger of Merrill Lynch into Bank of America and the rescue of massive insurer American International Group Inc. (AIG) by the federal government. The repercussions from these events are severe and far reaching.

What are the underlying causes of these events?

• Sub-prime Loans. Getting a mortgage loan is the traditional way for a family to buy a home and lenders follow strict guidelines in underwriting these loans. Some lenders and mortgage brokers became more liberal in underwriting mortgage loans and created and sold loan products that took advantage of many borrowers who did not fully understand the loans that they were signing for. Often, the borrower’s ability to repay the loan was overlooked in the loan decision. Instead, the lender relied on ever-increasing real estate values as the basis to qualify the loans. The lenders and mortgage brokers benefited by charging fees to generate these loans. The availability of cheap mortgages drove up the price of real estate which created a vicious cycle of unsound lending on artificially inflated housing prices.

• Securitization and Leveraging. Many lenders and investment banks would take a pool of mortgage loans and package them for sale to investors who believed they were purchasing a safe investment secured by real estate loans. This provided additional funds for lenders to make more loans which could be later packaged and the cycle would be repeated many times over.

• Increased Foreclosures. Over time, many of these sub prime mortgage loans became delinquent and properties were foreclosed. With lenders trying to get rid of these foreclosed properties, the artificially inflated prices of other properties started to drop and created a situation where there were too few qualified buyers for too many properties for sale.

How has this affected the Credit Union?

Your Credit Union remains financially sound. We have religiously practiced time proven methods of managing your money and making prudent lending decisions. Occasionally, we make loans to members who have had credit problems in the past. However, because we keep most of the loans we make, we will not make a loan if there are doubts about the member’s ability to repay us. This is a fundamental difference between the credit union and a subprime lender. We are extremely proud of our historical foreclosure rates and in more than twenty years, we have foreclosed on less than ten properties. We realize that the economic cycle has changed but we remain focused on our long term goal of protecting your assets.

If you find yourself in a situation where you have been affected by the downturn in the economic cycle, we may be able to assist with financial counseling, a financial plan and a consolidation loan. It always pays to borrow from a lender who has their interests aligned with yours. It’s never too late to protect yourself and your assets. As a valued member/owner, please call any one of our offices and we will do our best to create peace of mind for you.