Milwaukee Credit Unions Report Increase in Wisconsin Mortgage Defaults

A handful of Milwaukee-area credit unions are experiencing more Wisconsin mortgage foreclosures so far this year, driven by lower housing prices, higher interest rates, and borrowers who are unable to make such higher rate payments.

Banks, meanwhile, are not facing the same issue. Bank executives said their foreclosures so far this year are relatively flat compared with the prior 12 months. Credit union and bank executives said one reason banks may be avoiding an increase in foreclosures is because banks often take on fewer bad credit home loans than credit unions, which are willing to take on potential problem loans to help their members.

Contributing factors
Several factors are contributing to foreclosures: adjustable rate mortgages beginning to reprice, often at double the previous interest rate; homeowners who used their home equity to pay off other debts are not recovering that equity because housing prices have fallen; and borrowers’ willingness to give up their homes.

“Individuals continue to grossly overextend themselves,” said Ralph Brunner, president of ALLCO Credit Union, West Allis.

ALLCO has seen a significant increase in the number of foreclosures - to about 26 so far this year compared with two or three during all of 2006, Brunner said.

Most of the credit union’s mortgages were written with balloon payments after two, three or five years. The credit union also offered loans at 100 percent financing, expecting that borrowers could quickly build equity in the property, he said.

If borrowers see the value of the home increasing, they are more likely to want to work something out with their lender to hold on to the home, Brunner said. Now that home prices have dropped, that’s less the case.

“The appreciation that was taking place probably created a comfort level for lenders,” he said. “If there is no equity, it’s fairly easy for somebody to walk away.”