Joyce Moed | Business Samples

Identifying High-Risk Members
By Joyce Moed

RALEIGH, N.C.–Before mailing out letters to the 20,000 members who may be victims of subprime lending practices, Local Government Federal Credit Union first had to identify these high-risk members.

"That was the tricky part," said Maurice Smith, president of 153,000-member credit union.
LGFCU went through Equifax to identify its members with low credit scores and abnormally large mortgages, Smith said. Then on June 25, letters were mailed to the 20,000 members that were identified as being targets, or already victims, of subprime lending. The letters told members that if they were in this situation, the credit union would like to help.

"We put a lot of effort into researching out membership base to identify those who may be trapped in subprime loans or those who are at risk to being prey to subprime lenders–even if it’s just the slightest risk," Smith in a written statement. "We feel almost certain that if we can reach those who may be trapped in a loan with an exploding interest rate and outrageous terms and conditions that we can offer a better solution to home- ownership."

Whether the letters will attract members to come into the credit union to discuss their options has not yet been determined, as it is too soon to tell, Smith said.

The solutions include two new products like the ones recently announced by the credit union’s sister institution–State Employees’ Credit Union: a five-year adjustable rate mortgage and an All Savers Mortgage.

The ARM is a 20-year mortgage offering 100% financing up to $400,000. LGFCU’s rate is currently 6.75 percent and is subject to change every five years. Increases are limited to 1.5 percent each increment with a maximum increase limit of 4.5% over the life of the loan.

The All Savers Mortgage is a fixed-rate mortgage offering 100% financing, a 15-year term and a maximum loan amount of $400,000. A feature of the loan is that an additional 10 percent is financed to open a share-term certificate with a rate equal to the mortgage loan. Additionally, these funds are only made available under a few circumstances: it’s been 10 years since the loan origination, the mortgage has been paid off in full, or the mortgage balance is less than the STC balance. Currently the rate for this loan product is 6.5%.

These loans are a 3 to 4% percent difference from the subprime loans they may already have.
"For a family struggling to get by, that is a huge difference," Smith said.

The loans can be granted to any credit union member who would qualify for any of the other loans they offer.

"We would not deny a loan based on credit score," Smith said.

Instead LGFCU’s loan decisions are based on debt/income ratio and collateral.

"Of course, LGFCU does not offer subprime loans, but we cannot just sit back and let our members lose control of their home or their entire financial situation," Smith said.

Smith said the credit union, which has $709,235,740 in assets, would be open to new members joining due to these new products, however that was not the intent of their creation.

"It is the duty of a credit union to help educate its existing members," he said. "Also, it’s difficult for us to know the other folks that could need this service. We know our membership."