Artificial Intelligence Confirms Gross Inaccuracy of Credit Scores...

  

       AI can't be wrong, ... can it?

✅ ZEST:  "The company said its machine learning models deliver significantly greater accuracy than legacy credit scores, enabling lenders to achieve, on average, a 25% increase in approvals with no added risk and reduce defaults by 20%, while holding approvals constant." [link to story] 

✅ Rodney Hood, former Chair of NCUA (and Durham, N.C. native) adds:  "Financial inclusion is the civil rights movement of our time... credit scores determine where you work today, if you get to work! Credit scores determine where you live today, if you get an apartment or get a mortgage. Where you live determines where you get to educate your children. What your credit score is determines the car you may or may not have access to, to go to and from work."  [link to video - see 00:48].

😎 Translation for the "new/new" lending mavens at SECU. According to AI, your RBL model is an ineffective mess, if on average you are denying 25% of SECU member loans which should rightfully be approved, while increasing your defaults by 20%.  Maybe you should call Coastal or Truliant for some guidance and advice about lending and ZEST [link]?

... sure sounds like discrimination to me. 

"I can't believe what you say, because I see what you do." - James Baldwin  

 

 

What Does It Take For You To Stand Up Against Discrimination?

     Well, they can always eat cake...

The evidence has long been clear that risk-based lending (RBL) is discriminatory [link] on the basis of race, gender and age.  The SECU Board leaped off this moral lending cliff in 2023 and has fallen in esteem and performance ever since. 

✔ With the current government shutdown, once again we have positive proof that RBL is a bogus, destructive credit union lending practice. This time RBL practitioners are wrongfully throwing our military, our federal workers, various federal benefit recipients, and their families into a financial catastrophe not of their own making - but for which they will pay the price! 

✅ Here read the letter from the Defense Credit Union Council, a leading national credit union advocacy group representing 40 million credit union members, on the effects on member credit scores of the federal government shutdown  [link- entire letter]  

✅  Or the CUDaily article on the shutdown problem [link] 

😎 "Beyond the immediate strain of unpaid bills, the ripple effects on financial health are severe. Missed mortgage, loan, or credit card payments trigger late fees and "can inflict lasting harm on credit reports and scores". 

 "... In theory, no worker or service member has to suffer a credit score drop because of a shutdown. However, the reality is that not all affected individuals benefit from these voluntary measures. We cannot leave our service members’ financial security to ad-hoc charity or luck; they deserve dependable, systemic protections." 

  The point Mr. Stverak, Chief Advocacy Officer of DCUC, misses is that our service members get thrown under the financial bus by unexpected events everyday.  The current "shutdown" is not the real problem.

For years, highly responsible SECU members - and DCUC service members - have had their financial lives disrupted by unexpected events beyond their control - loss of job, severe illness or death in family [link], disabling car accidents, divorce, alcohol/drug/mental health issues, hurricanes/floods, and the list goes on. 

In western North Carolina, the latest unpredictable, catastrophic event was Hurricane Helene [link], which financially ruined thousands of fine SECU members - an event not of their own making, but for which they will pay the price!   That's real life, which RBL, the SECU Board, and elite management have chosen to callously ignore. 

If credit unions want to fix this problem of obvious unfairness to all members, then a return to responsible, non-discriminatory lending is a must.  Fix the real problem. 

 

  SECU RBL: Leaving western N.C. members financially high and dry?

Commenters Hammer SECU ARM As Source Of "Lending Problems"

   What's the truth?

✅ Commenter: Anonymous September 15, 2025 at 2:24 PM

"Just so laughable. 1930's thinking? You literally ran until retirement a 1980's thrift mortgage model. What's being recommended is the current, contemporary being employed by CU's and lenders that don't have 1 billion+ in bad mortgages on their books..."

😎 Do want to take one more moment to do a "Whoa, horse!" on the many comments that have been made along this line. Hopefully, they are just low-rent trolls or low-grade economy model AI responses. You know how unreliable anonymice can be! 

✅ Pretty sure such comments are simply not true. Much room to criticize the "new/new" for poor lending policies, weak underwriting, and suspect collection practices, but none of those are caused by the ARM product.

As we all know, SECU has always been a prominent mortgage lender in North Carolina. Typically around 70% of all loans are mortgages at SECU; a large majority of those mortgages are ARMs! 

Here's a ten year history of actual loan losses at SECU:

Year      Mortgage Loan Charge-offs              Total SECU  Charge-offs 

2017                $9.8 million                                     $84 million

2018                $6.9 million                                     $100 million

2019                 $8 million                                       $102 million

2020                 $5.3 million                                    $73 million

2021                 $390,000 (!)(!)                               $50 million

2022                    $0 (!) (!) (!)                                 $96 million 

2023                 $700,000  (!) (!)                             $197 million

2024                 $8 million (!)                                  $234 million                 

2025                 $2 million (thru 6/30) (!)               $138 million (6/30)

✅ While representing @70% of the total loan portfolio, hope it's clear that even in the worst year (2017),   SECU member mortgage loan charge-offs have always been less than 1/10th of one percent of all mortgage loans.  Folks just don't default very often on their homes, if prudently underwritten! 

Members have always honored their mortgage commitments to SECU - even in pandemics, regardless of up/down interest rates, recessions, job loss, divorce, death. SECU has never put members into mortgages that weren't in their best interest! 

✅ Loan losses are soaring at SECU under the "new/new" - ARMs are not the problem - never have been!

 The "Unbelieveables"...

Comparing A 30-Year Mortgage: Fixed Rate Or ARM ?

  But, but, wait, wait... 

   it's "industry standard"!

SECU members and most consumers believe that a 30-year fixed rate mortgage is a better choice than an ARM. 

It just appears to make common sense, that if a borrower can lock in a fixed rate, it has to be better than a mortgage with a rate which might move upward, right? 

Most folks think that way and the mortgage industry works hard to make you continue to believe so - because it's in their best interest. But we'll look at that later, let's focus on just the individual borrower for this round.

First consideration: The interest rate on an ARM can "move" in three directions: 1) lower, 2) not at all, 3) or higher. Hope we can agree that we only need to study one of those possibilities, i.e. (#3), because if rates move lower (#1) the ARM borrower will pay less; and, if rates don't move at all (#2) the borrower also pays less because ARM rates are priced lower than fixed rate mortgages (check it out!). 

So, in two of the three possibilities for market rate shifts, the SECU borrower will pay less with the 30-year ARM mortgage. Easy enough, shouldn't be any arguments there.

Second consideration: But its that last possibility of rising market rates on which consumers focus, fearing rising monthly mortgage payments which they will not be able to afford. A very reasonable concern, but lets look at the facts. 

You should know that the SECU Board and staff always used to look for financial solutions which were better for the members and left extra money in their pockets. Isn't that what a member-owned cooperative is supposed to do? Over the years numerous types of ARMs were tried (1 yr, 2 yr, 3yr ARM versions etc). The 5-year ARM seemed to be the best fit and also is the mortgage most used in developed countries.

The example: The 5-year ARM rate can adjust only every 5 years by no more than 2% and by no more than a total of 6% over the 30 year life of the loan. In our example, we use the average price of a new home ($300,000) and a fixed rate of 6.25% and an ARM rate of 4.25%. (Doesn't matter which house price you use [down-payment, taxes, insurance other fees are assumed to be @ the same] or whether you use a different current market rate...the relative calculation results will be the same)

The monthly principal and interest payment on the 30-year fixed rate loan is $1,847 for the next 360 months (30 years).

The monthly principal and interest payment on the 5-year ARM is $1,476. the SECU borrower will save @ $22,260  ($1,847 - $1,476 = $371 savings per payment x 60 payments) over the first 5 years. If market rates decline or don't move, the SECU member will save at least another $22,260 in the second five years!

Worst case: But what happens if rates soar?!!? Well, the SECU member's rate will increase in years 6-10 to 6.25% and the monthly payment will be $1,847 - the same rate and payment as the 30-year fixed rate - except the member is still ahead $22,260! In year 11-15 if rates jump another 2%, then the $22,260 gain will disappear, but the ARM borrower will still be better off due to lower fees and mortgage insurance costs.

😎 An SECU ARM borrower in the worst case is a sure winner ($22,260!) in the first 5 years and no worse off through at least the first 15 years. If market rates decline, the SECU ARM borrower is a sure winner every year the ARM lasts. If market rates remain the same, the SECU ARM borrower is a sure winner every year the ARM lasts.

✅ Might note that the average 30-year mortgage lasts only 12 years. (A recent commenter said that it was now 7 years, not 12 years, which actually makes the case for the ARM even better!) Under any circumstances, few 30-year fixed rate mortgages last more than 12-15 years. 

✅ Might also note that President Trump - and now the Federal Reserve - are predicting that market rates are declining - and will continue to do so. 

Who would you bet on? The Prez, The Fed, or the "new/new"? 

SECU "New/New" Proposes Risky Move Of Selling Member Mortgages...

  Holy Cow! Why keep stepping in it?

Been talking about SECU's latest proposed "innovative" misstep - selling of SECU member mortgages to government sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac [link]. 

GSEs exist now primarily to prop up the 30-year fixed rate mortgage [link]. They only continue to exist because US taxpayers - that's you and me - guarantee foreign and domestic mortgage investors against loss on this financially risky mortgage loan product. 

You should note that these private, for profit companies went bust in the 2008 financial crisis and had to be bailed out by U.S. taxpayers - that's you and me.  When Fannie Mae and Freddie Mac went "belly up" U.S. taxpayers - that's you and me - had no choice but to pick up the pieces for these private, for profit companies.

Critics claim that a federal government guarantee of these GSEs "privitizes profits and socializes losses". When things are good private investors reap the rewards, when things go wrong U.S taxpayers - that's you and me - eat the losses. It's better known as: "Heads we win, tails you lose!"

✅ For the last 17 years, the U.S. government has owned and controlled ("conserved") Fannie Mae and Freddie Mac. Both are "wards of the state". 

There is much controversy and debate about what to do next with Fannie and Freddie to avoid another financial meltdown and crisis in the U.S mortgage market. President Trump has thrown out several alternatives [link].

The economic and political debate is fierce [link]. The future for these two problemmatic private companies highly uncertain.

😎 Why would our new/new "lending gurus" at SECU propose stepping into this mess? 

  Where is the SECU Board? 

SECU "Reinventing The Wheel" With 1930's "New/New" Mortgage Model

  Fixed rates require a lot of claptrack ...

If you're still there, we're taking a look at the latest mortgage "innovations" proposed by our "new/new" lending 'mavins" (have you looked up Luddites yet?) at the CU. 

Asked a couple of questions along the way. You've indicated that you didn't know the U.S. was the only country still using the 30-year fixed mortgage, thought the American Dream of home ownership was a good idea and that tax payers guaranteeing mortgages for private companies (Fannie, Freddie, etc) couldn't be true. (It is!)

We talked about how these government "sponsored" enterprises (GSE's) were created out of the financial turmoil of the Great Depression [link], but then refused to die when the crisis had passed. They zombied!

The final "nail in the coffin" of fixed rate mortgages was the 1980 deregulation of savings rates.  Prior to that time, believe or not, financial institutions were restricted by the federal government as to the savings rates they could pay. 

Rates didn't change much and CD's and MMSAs didn't exist. With the advent of deregulation, market savings rates began fluctuating (and still do!) wildly and rose as high as 21%! 30-year fixed rate mortgages no longer made sense; the Savings and Loan institutions which held mostly fixed rate mortgage loans collapsed.

But as we know, zombies never die, so even more elaborate "work-arounds" (derivatives, hedging, securitization - you really don't want to go down these rabbit holes!) were created to try and preserve the 30-year fixed rate mortgage dinosaur. These innovations in finance - we were assured - made fixed rate mortgage lending a safe and sound investment.

That fairy tale was hyped and sold to the public and taxpayers, because billions of dollars and careers were at stake - still are! The bubble burst in 2008 and reality came home to roost - the mortgage market collapsed, Fannie and Freddie went broke, you and I as taxpayers picked up the trillion dollar tab.

Don't believe all that? Try looking up the 2008 financial panic [link] or just watch the movie "The Big Short" [link]! And the "new/new" now wants to reinvent and repeat this mortgage mistake at SECU?

Tomorrow we'll get off the history lessons and I'll show you why an ARM is better for you as a home buyer, for SECU savings members, and for the North Carolina economy. 

😎 Enjoy "The Big Short"!

  What will the "new/new" think of next?

 

 

The Proposed "New/New" Mortgage Lending Proposals At SECU: Running With The Zombies?

    

   Zombie loans? Can't wait for this one!

😎 Don't get ahead of yourself!  See from yesterday's "Comments" [link] that many of you did your homework. Were you surprised that no other country uses the 30-year fixed rate mortgage in their housing finance? Little unusual don't you think...wonder why?

Will let you do your own historical research, but here's a 15 second summary. With the 1930's Great Depression, the banking industry collapsed. Millions lost their savings and faced foreclosure on their home mortgages at their local bank.  

The federal government stepped in to try to avoid further financial disaster with two new programs 1) federal insurance of bank deposits (that $250,000 coverage you now enjoy) and in 1938 created the Federal National Mortgage Association (better known as "Fannie Mae") to "expand the mortgage market", but in reality to let folks keep their homes (and coincidentally help bail out the banks!). 

Government intervention in a crisis (whether financial, pandemic, hurricane, fire or flood) is usually a pretty good thing - regardless of your libertarian leanings. One of the problems with such government programs is often, once the crisis has passed ; the programs don't want to close down... and instead turn into zombies. They refuse to die! 

Fannie Mae went looking for a continuing purpose with a vengeance and found: "The American Dream - Home Ownership"!  To help all of us achieve that dream and to avoid another financial collapse, Fannie Mae and the U.S. government would join forces to guarantee those risky 30-year fixed rate mortgages! Soon others piled in - Ginnie Mae, Freddie Mac, USDA - and the race was on!

😎 Lets stop there and ask a couple of questions:

1) Do you think that "The American Dream - Home Ownership " is an idea which has merit?

2) Do you think that federal government involvement with the mortgage market is good? 

Everyone knows about zombies, how about Luddites?

 

SECU Plans Reversion To 1930's Thinking On SECU Member Mortgages...

    Twiddling!

While we await a response from SECU Chief Legaler, Ms. Cathie Plaut, as to the fate of SECU Member Resolutions (see "Guilty Until Proven Innocent" post [link]), don't miss the interesting dialogue which has broken out on mortgage lending in the "Comment "section [see link] - 60+ comments and rising!

In fairness to Ms. Plaut, she indicated she would be out of the office last week, so a response wouldn't be forthcoming until later this week.

Since we have some time, will try to bring the discussion of SECU's next "new/new" lending misadventure to the main page. Loan Administration has gone all out this time! Building on its recent record of...

 If you like the movie "Back to the Future" or any cinema featuring zombies, you'll like LA's "new/new" mortgage ideas... Get out the popcorn!

  Zombie movies?... Oh no, now what?

SECU What Next ? SECU Board Strips Away Member Rights...

  ... starting with freedom of speech.

As you noted in the "Brass Tacks" post [link]; over the last two years, the SECU Board first restricted and has now prohibited SECU members from speaking or pre-submitting resolutions at the Annual Meeting.  How has this happened? 

😎 Several commenters asked the appropriate question: "Why does the SECU Board fear the members?"

✅ The SECU Board took these core membership rights away by submitting a series of bylaw changes to the NC Credit Union Division (the State CU regulator) in mid-2023. In part, the SECU Board requested the following amendment to: "... (iii) authorize the Board to establish upon notice to the membership policies and procedures governing the order of business, format and conduct of the annual meeting." 

The SECU Board passed the proposed bylaw amendments at its evening meeting on Tuesday, 6/27/2023 and submitted them to the NC Credit Union Division for approval on Wednesday, 6/28/2023.   

The proposed SECU bylaw amendments were approved by the Administrator of NC Credit Unions on 6/30/2023, two days later - an unheard of regulatory turn-around for non-standard bylaw proposals. After approving the bylaw amendments on 6/30/2023, the Administrator of Credit Unions then retired at the end of the day .

Without the "middle of the night" by law approvals, the SECU Board would not have been able to restrict and then prohibit  member free speech at the Annual Meeting - reversing binding, fundamental member rights which had been in place since 1937.

😎 Why is the SECU Board purposefully stripping these basic rights from the SECU membership? "Why does the SECU Board fear the members?"

  Down to brass tacks... with more to come!

 

 

 

Why SECU Lending Needs To Change And Bears Watching...

   

 Careful!... or you will definitely get mauled! 

Now that you are an expert on "TDR's" [post link] and have an honest understanding of the principal reason SECU's delinquency "dropped $581 million, down 51%!" overnight, lets take one last glance at the remaining, overall delinquency situation at the Credit Union.

Any major TDR  adjustment in the hundreds of millions of dollars will make future comparison of delinquency "awkward" at best. Why?  Because many loans that were delinquent over the last six months are now "undelinquent", or much less so. The goalposts have moved a bit!

So, what do you do?  You increase your focus on the 3+ month (90+ days) delinquency totals, rather than tracking the 60+ day delinquency totals. Why?  Because while TDR adjustments make many 30, 60, 90 day delinquent loans "undelinquent"; TDRs generally do not greatly impact the 90+ days delinquent accounts. 

A commenter indirectly pointed this out yesterday by noting that according to the SECU's website financial summary [link], 3+ month delinquency had increased from 1.11% in March, 2024 to 1.39% in March, 2025. Note that the increase in 3+moth delinquency to 1.39% is after the large TDR adjustment.

✅ What do those "%s" mean in real dollars?  The 3+ month delinquency at SECU has increased from $376 million in March, 2024 to $495 million in March, 2025. That's an increase of +32%. During the same period, outstanding loans increased by only 6%.

😎 The 3+ month delinquency level of $495 million is an excellent "leading indicator" of future SECU loan losses over the next two years.

SECU is making a substantially larger number of bad loan decisions than in the past. The SECU Board should address the problem.

 

  Or should SECU members be expected to just grin and bear it?

 

 

 

 

Breaking News! SECU Further Enhances Rewards Card...

 

[* at Chick fil-A!] 

  Now that's a "real" unicorn!