SAN DIEGO -
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Markets from South Florida to Southern California have seen home prices slide, including San Diego, where property values have declined 8% to 10%. Jeannette Kelbaugh, manager of consumer lending for San Diego Metropolitan Credit Union, noted that her market is experiencing the bubble burst that is being felt, often painfully, in many places. When home appreciation seemed to be on an unending upward curve over the past few years, she said, too many people "used their homes like ATMs to live a lifestyle they could not afford. Many of their items were bought with borrowed money, and now they are losing everything. It is really sad."
While much of the focus in the declining real estate market has been on the slowdown in home sales, for many credit unions the real consequences lie in a slowdown in home equities Kelbaugh, a member of the CUNA Lending Council, said demand for home equity lines of credit has slowed considerably-in part because valuations for properties do not cover the amount of the first mortgage. She said members' interest has turned to fixed second trust deeds as they have become more conservative.
"Property values were being driven up by speculation, but the income of the area was not being inflated," she told Credit Union Journal. "People were buying homes way beyond their means. The only way to make it was option loans. People wanted to get rich with real estate, and there was a lot of inexperience with Realtors and brokers. People were not aware of the type of loans they were in, or the consequences of the contracts they are in."
And the consequences can be huge. "Sub-prime lenders have put people in positions and loans they cannot afford. They've put people in houses they can't afford, and consumers were not aware of the type of loan they had. People were counting on values to continue to rise."
Those who purchased a house two or three years ago might have a small amount of equity remaining, she estimated. But those who bought a year ago, especially borrowers in negative amortization loans, are "really stuck." "It is going to get ugly before it gets better. San Diego typically sees values rise for five years, then decline for five years."
In the Philadelphia area, on the other hand, home values have not seen as rapid an escalation as other markets. While that means consumers may have been less likely to tap a windfall of home equity, it also means credit unions in the market are not now having to deal with the ugly consequence.
Donna Angeloni, manager of lending at Philadelphia FCU, is among those who reported her credit union never did see a spike in demand for home equity loans. Instead, "Our membership tends to want lower rates and fixed rates. We use a quick close product that turns the process around quickly, and we have an insurance product on top of that."
Trumark CU in Trevose, Pa., serves the five-county area surrounding Philadelphia- Bucks, Montgomery, Delaware, Chester and Philadelphia Counties. Trumark's chief lending officer, Lisa Albany, said she has seen "a softening" in Trumark's market area, but added, "it has not been as dramatic as in other parts of the country. There has been more of an interest in fixed-rate home equity products than in lines of credit."
Albany said her CU has not seen much fallout from sub-prime lending, despite the problems other areas of the country have experienced. She reported only a "mild softening" in Trumark's five-county region, with homes staying on the market longer and a small decline in prices of about 10%.
PFCU's Angeloni added, "We have very little delinquency in our home equity portfolio," she said. "We are at 6.2% fixed for our best credit tier, which we recently raised from 5.74%. Trumark is at 5.74%. Our maximum rate is 10.25% for 10 years."
Albany said her credit union recently changed its HELOC product to offer a tiered home equity line of credit. She said Trumark is marketing a below-prime rate for its top-tier households.
"No financial institutions in our marketplace seem to be aggressively marketing the HELOC product. Marketing dollars seem to be primarily focused on the fixed-rate home equity option," she said.
Yet back in the southeastern U.S., much like San Diego, credit unions are dealing with market declines. Vicki Lovett, VP-loan operations for Suncoast Schools FCU in Tampa, Fla., said the challenge for credit unions is to help people retain their homes.
"We are seeing some delinquencies on home equity and HELOC mortgages," she said. "If members are having problems with their first mortgages here or elsewhere, we want to help them avoid foreclosure."
"In Florida, we have seen counties along the west coast where values increased rapidly over the past four or five years, but have leveled off," she continued. "There are some areas where there is over-availability of properties. There are pockets where property values are stagnant or even decreasing somewhat."
Despite rumblings in the Tampa real estate market, Lovett said many members remain interested in tapping home equity. She said Suncoast Schools FCU is seeing a "good mix" of HELOCs and home equities. Property valuations in the area are leveling off, with some declines, she added. "We are working with our members on how to make those loans work best."
According to Lovett, Suncoast Schools' HELOC differs from that of many lenders because it is not interest-only. "Those [interest-only loans] can be really risky for borrowers, which is why we have chosen not to structure our loans in that manner. We also work hard to limit any closing costs to the member."
In San Diego, Kelbaugh said SD Metropolitan CU changed its rate structure to meet the market and still manage its risk. She said she has not witnessed other credit unions aggressively pricing and/or marketing HELOCs, but banks have.
