As U.S. banks retreat, credit unions step up loans

By Nick Carey

NOVI, Michigan (Reuters) - Some U.S. consumers hit hard by the credit and foreclosure crisis are finding that down-sizing their lender is paying dividends.

Thanks to his local credit union, for example, former automotive engineer Jim Greenshields is buying back his old house from the big bank that forced him out of it three months ago -- for $200,000 less than he owed in the first place.

"My old bank wouldn't deal with me, even though I offered them a payment plan to get back on track with my mortgage," said Greenshields, 55. "The credit union looked at who I am and how I pay my bills, and decided I was worth the risk.

"That made all the difference," he added.

As the U.S. economy weakens and the country suffers its worst housing crisis since the Great Depression, big "money center" banks -- after years of reckless lending before the housing bubble burst -- have cut back drastically on loans.

But lending by credit unions is steadily rising. Credit unions are nonprofit cooperatives owned by their depositors, or "members." Credit unions are as a rule much smaller than commercial banks, with average assets of $93 million in the United States in 2007 according to the Credit Union National Association (CUNA), compared to $1.53 billion for banks.

According to CUNA, there are more than 8,000 credit unions in the country.

"There has been a lending freeze in most of the banks in Cleveland," said Rita Haynes, chief executive of the Faith Community United Credit Union in Cleveland, which has 6,500 members. "So more people are coming to us."

Jim Greenshields spent 20 years as an engineer working for Ford Motor Co (F.N) and was laid off three years ago, like many thousands of others in the struggling U.S. auto industry.

It took him until this summer to find a new job with the U.S. Department of Defense, at which point he had been in default on his mortgage since late 2007. Greenshields' proposed payment plan was rejected because he had been in default for so long, so he handed over the keys to his home in August.

"I was ready to pay back every penny I owed," he said, shaking his head. "It shows the poor business sense of the big banks when they won't even work with their customers."

Less than three months later, Greenshields said, Community Financial Credit Union, which has 40,000 members and deposits of around $420 million, had given him a car loan and a mortgage to buy his former home back from his old bank for $250,000 -- compared to the $450,000 he paid the first time round.

"Most banks now will not consider lending to someone just out of foreclosure," said Eric Esser, vice president of mortgage services at Community Financial.

But because in good times Greenshields paid his bills promptly, his wife has a solid job, and because he -- a veteran wounded in Vietnam -- works for the Department of Defense, Community Financial decided he was worth the risk.

"We look at each person individually to see if they can pay us back," Esser said.