WASHINGTON – Mortgage losses continued to rise among credit unions in the first quarter, with home equity lines of credit emerging as one of the biggest trouble spots, NCUA Chairman JoAnn Johnson told Congress yesterday.
Johnson, testifying before the Senate Banking Committee on the state of the industry, said mortgage charge offs, while still lower than bank losses, doubled for credit unions over the past year, as did foreclosures.
“The largest area of concern within the category of real estate loans continues to be with the category of other real estate adjustable rate loans, consisting primarily of home equity lines of credit," said Johnson.
The industry’s HELOC delinquency ratio rose to 0.96% for the first quarter, from 0.80% at year-end, while HELOCs mostly were to blame for a doubling in real estate charge offs to 0.19%, from 0.08%, according to Johnson.
Yesterday’s hearing came as the Mortgage Bankers Association was reporting that mortgage foreclosures nationwide rose to an all-time high in the first quarter to 0.99% of all home loans, up from a previous high of 0.83% in the first quarter last year. Mortgage delinquencies also rose to 6.35% in the first quarter, the highest since 1979.
Several credit unions, mostly in California, have been hurt by their HELOC portfolios, most glaringly Cal State 9 CU, the one-time $460 million Concord, Calif., credit union that failed recently; and Sterlent CU, a $120 million credit union in nearby Pleasanton, Calif., which also is struggling with HELOCs.
Many other California credit unions are seeing troubles from HELOCs because of the plunge in home values throughout the state.
“A state-by-state breakdown of foreclosed real estate based on credit union location shows three states alone (California, Michigan and Virginia) account for over a third of total foreclosure dollars and nearly a quarter of the number of credit unions reporting foreclosures,” said Johnson, who was testifying beside banking regulators at the Fed, the FDIC, Comptroller of the Currency and the Office of Thrift Supervision.
Johnson told the Senate panel credit unions continue to move large sums into loan loss reserves, which has weighed down their earnings. However, she said the level of return, 60 basis points for the first quarter, is “more than sufficient to cover the cost of operations and to contribute to the already solid level of net worth.”
Johnson noted average net worth continued to grow in the first quarter to a new high of 11.07% of assets, giving her confidence that most credit unions will be able to absorb any additional real estate-related losses.
