3 Ways Credit Unions Can Help Veterans
By David Morrison – June 24, 2014
Veterans and their supporters said there are three ways credit unions could help returning service members improve their financial lives: Teach them how money works, help them move past previous mistakes and provide access to loan products established just for them.
“In general, I don’t think credit unions need to create special products just for veterans,” said Debbie Guiney, CEO of the $69 million Allcom Credit Union in Worcester, Mass. “They just need us to be aware they are out there and for us to reach out to make sure they know about what we offer and how it can help them.”
Guiney knows of what she speaks. For several years, Allcom has been helping other credit unions organize to support Massachusetts’ veterans groups, including a group called Veterans Inc., also headquartered in Worcester.
Here are Guiney’s and others’ recommendations for ways credit unions can help veterans.
1. Financial Education and Basic Services
“I think basic financial education, how money works and how to manage and handle finances is one of the most important things credit unions can provide returning service members,” Guiney said, adding since almost all credit unions already offer some sort of financial education, it’s often a matter of making sure the veteran knows about the educational offerings and feels comfortable using them.
Vincent Perrone, CEO of Veterans Inc., agreed with Guiney and stressed the term veteran includes a wide variety of people, from those who would be among the most underserved populations in the country, to those who might need advice on investment strategies or how to get small business loans.
“We work with helping homeless veterans get into housing,” Perrone said, “as well as obtaining other services and learning other skills, so we see people will all kinds of different levels of knowledge, and expect credit unions will too.”
Guiney said financial education could teach how to start an effective savings plan by directing part of a paycheck into savings, if possible. Other topics could include practical budgeting, how to balance a checkbook or use a credit union’s online or mobile banking app to track spending, how debit and credit cards work, how interest works and how to include interest to properly price things.
Other important products include basic financial products veterans can use to get themselves established in the financial system, Guiney said.
“Many people come out of the service without a credit history,” she observed. “Sometimes they might have a negative history, but much of the time they don’t have a history. Credit unions can help returning servicemen and women by offering credit building credit cards, personal loans or other loans they can use to build their credit history.”
Guiney emphasized the first step is to identify the veteran and reach out to him or her. Including a question on a membership form about whether or not the new member has served in the armed forces can let the credit union know to follow up about specific things he or she might need.
2. Refinance Expensive Loans
Even though many veterans lack a credit history, if they have been out of the service for a few years they may have been ensnared in high-interest, high-fee loans that can slow their financial progress, according to Guiney and other executives who work with veterans. Credit unions can help veterans by reviewing their existing loans and refinancing them with better rates and terms.
“It’s sad, but it’s almost become a stereotype, the high-cost vehicle that has been sold to a young service member and financed with a high-interest, high-fee loan that will trap them in payments for years,” said Son Nguyen, founder and CEO of Veterans Association of Real Estate Professionals. “You see those lots and places all around the bases or other locations with lots of service members.”
Nguyen said a review of existing loans could be linked with financial education to help a veteran understand what about the loan hiked the cost, and to help him or her better evaluate other future loans offers.
Guiney added credit union may have to extend themselves to refinance some of the loans, particularly if the returning service member is upside down on the car; but, the refinanced loan could have an enormous impact on the member’s life.
3. Offer VA Home Loans
Nguyen felt frustration, but not surprise, that neither the NCUA nor the Veterans Administration tracks the numbers of credit unions offering VA loans. But he said he is certain more credit unions need to offer them.
“No doubt reforming the VA loan would help more institutions offer it,” Nguyen said. “But nevertheless, it needs to be offered more routinely and more veterans need to be told about it,” he said.
VA loans help returning service members because they require no down payment on loans of less than $417,000, and may not require a down payment on higher loan amounts, depending on the lender. They also carry lower interest rates and do not require mortgage insurance. The program also prevents veteran borrowers from paying certain closing costs.
The Veterans Administration provides a guarantee for VA loans in much the same way the Federal Housing Administration provides insurance for loans, according to the agency. The guarantee, or entitlement, refers to the amount of the loan the Veterans Administration will pay in case of default. For loans of less than $144,000, the entitlement is $36,000. For loans of more than $144,000, the entitlement is 25% of the loan amount.
In addition, the overall cap for loans that qualify for the program is $417,000, but the Veterans Administration has a list of counties where the cap is higher to reflect higher home prices.
VA mortgages can be sold on the secondary market and Nguyen noted their delinquency and default rate, even during the housing crisis, was much lower than that of FHA-backed loans or conventionally insured loans.
Nguyen stopped short of charging lenders with deliberately underselling VA loans, but noted one of the reforms VAREP has been seeking would require lenders to include VA loans in the loan disclosures put in front of veterans as part of the loan process.
“We can’t demand lenders offer veterans VA home loans first,” he said, “but we can expect when a lender puts down a comparison of loan costs between, say, an FHA loan or a conventional loan, they also show the costs of the VA loan.”
Nguyen explained VAREP has a goal of getting more institutions to recognize active duty military, veterans and their families as a socioeconomic group and to start treating them as such.
“If we were treated as a socioeconomic group, which of course no one does now, we would have more purchase power than the lesbian, gay, bisexual and transgender community, and would come in just behind the Hispanic community,” he added.
Bob Dorsa, president of the American Credit Union Mortgage Association, said he was confident no credit unions intentionally avoid VA home loans, but said credit union mortgage lenders have generally been slower to adopt government backed loans, whether the backer has been the FHA or the VA.
“Other than the very large credit unions and some CUSOs, the issues with the processing and servicing of government loans has been a difficult hurdle for as long as I can remember,” Dorsa wrote in an email to CU Times.
“Underwriting and some of the extra hoops with government loans were just a bit too much since refinances were much easier,” he added, saying ACUMA planned seminars in both VA and FHA loan processing and servicing to help credit unions expand their offerings of both loans.
But Guiney countered credit unions could offer the loans even if they did not do so themselves, by partnering with CUSOs or mortgage firms that offer the loans.
“The important thing is the veteran member has a chance to get the loan,” Guiney said. “It doesn’t have to come from your credit union directly.”
Perrone added it has become more important for credit unions to request a copy of veteran members’ DD 214, a document the Defense Department issues to service members when they leave active duty.
“It’s sad to say, but we have noticed an increase nationwide in the numbers of people claiming veteran status to have access to benefits they don’t have,” he said.