One of the many unfortunate by-products of a major recession is the way it interferes with our financial plans and goals. Carefully laid out plans and disciplined financial habits seems to be for naught when the value of our 401k or home or other real estate holdings suddenly declines significantly. For some this means delaying planned retirement and for others it results in a change in life style.
Helping Each Other Through The Recession
We all have been affected to one degree or another by this recession. While the credit union remains healthy and strong because it has no debts and has tried to follow sound financial principles, the credit union and its members are nevertheless affected by the economic downturn. As some members experience unwanted changes in jobs and income, they may have trouble keeping up with loan payments and other obligations. The money borrowed by credit union members is the same money that other members of the credit union have placed in savings. By matching borrowers and savers, the credit union enables members to save at competitive rates and to borrow at low rates. Interest paid on loans is used by the credit union to pay for expenses and to pay interest to the savers. The not-for-profit credit union model works well bringing the saving and borrowing credit union members together and offering them both great value. That is part of the reason the credit union has remained healthy – despite the effects of the economy around us.
Real Estate in a Recession
For many years, we all have been able to rely on the fact that unlike autos and other household purchases which go down in value, real estate purchases and investments have consistently and reliably gone up in value. For many, buying a home that would appreciate in value has been an important part of a long-term financial plan. For many years, we have been able to invest in real estate and see reasonably quick financial rewards. Many people, including credit union members, have borrowed to purchase and invest in all types of real estate. Unfortunately, in the current economic environment real estate values of all types have actually gone down. We are not use to this. And while it is to be expected that real estate values will recover – we are told that it will take a while for that to happen. In the meantime, many are faced with owing more on a home, a building lot, or other real estate than it is worth. While we expect this to happen with autos – we are certainly not used to it happening to real estate. We understand it is uncomfortable to be making payments on real estate currently worth less than what is owed. When the loan principal exceeds the value – it can be hard to continue believing in the principle of honoring our obligations and promises to make agreed payments. Some don’t want to wait for real estate values to recover. They are even tempted or in some cases ill-advised to just “walk away” from the property and the loan. Of course, it is not that simple. The legal and moral obligation doesn’t go away by “walking away” or “giving back” the real estate. At minimum, a person’s credit rating is at risk. Generally, if the real estate is sold at the lower value, the person will still be liable for the balance owed (deficiency balance). At UCCU any losses suffered as a result of unpaid loans is shouldered by all the members. The credit union has no money of its own. Every penny at the credit union is owned by members. Members who are having trouble meeting their payments due to unemployment or underemployment need to contact us to see if we can make arrangements or adjustments to help you honor your commitment and help you successfully get through these times. We understand that financial troubles can become so overwhelming that even steps like bankruptcy can be appropriate considerations. Please talk with us first to see if there is a way we can help you avoid that blemish on your credit rating. We will do everything we can to help you.
Don’t “Walk Away”
For those few members who are able to continue making payments but are considering “walking away” from payment obligations because the real estate owned is worth less than is owed, as fellow members of the credit union we suggest they consider the following:
- Returning the real estate doesn’t cancel out the loan balance. You are still liable for the balance.
- When it comes to keeping society and the local economy healthy, principle trumps principal. We each have a moral and legal obligation to the other members of the credit union. The recession has hurt all of us. By meeting our obligations to each other we protect each other, the credit union, and we enable the credit union to continue offering outstanding value and service to all members. Having faith in the future helps us to continue meeting our obligations – despite the inconvenience and irritation that comes from working our way through a major recession.
- You didn’t borrow the real estate from the credit union or its members – you borrowed the money from them so you could make the purchase.
- Your promise to repay the money doesn’t hinge on whether or not your investment paid off or on whether or not the real estate increases in value.
- Just as you wouldn’t be expected to share any profit from the real estate investment with the other members of the credit union – you shouldn’t expect the other members of the credit union to shoulder any losses you have if your investment doesn’t return a profit – yet.
- Other credit union members had faith in you by lending you the money. By repaying the loan you also repay and honor their trust in you.
- Your credit rating can be drastically affected – thus curtailing your ability to take advantage of post-recession opportunities to rebuild your investments and re-establish your financial, estate, and retirement plans.
So if you or someone you know is tempted or ill-advised to “walk away” from a loan or obligation here at the credit union or anywhere else – please be careful and wise. This recession will pass. Real estate values will recover. And some investments don’t always pan out – but in the long run, your character and integrity always will.
UCCU – Here For You
The credit union is here for each of us. We offer the services, the products, and the information that can help you successfully reach your financial goals – even through a tough recession. We need to have faith in each other – and ourselves. As we do this, I am convinced that our best efforts and commitment will make us and our community a better place in which to live, work, and raise our families.
Utah Community Credit Union