LAS VEGAS-One of the credit unions hit hardest in the country by the recession and real estate collapse, Silver State Schools, has a "long road" ahead ot it, but its CEO believes it will recover.
Silver State Schools declined to $653 million in assets at year-end, down from a one-time high of more than $1 billion. Although it lost $8.4 million last year, CEO Andy Hunter pointed out the red ink was a significant improvement over 2010, when it lost $21.4 million, and 2009, when it lost $50.8 million.
"Overall I think things are going real well," he said. "Not everything is going perfectly upward, but there are a lot of good things going on here. When I came onboard I found the board is strongly supportive and management is capable and open to change. The local economics have been improving a bit lately."
Hunter, the former CEO of Patelco Credit Union in California, came out of retirement to take on the difficult task of turning around this troubled CU last summer (CU Journal, July 4, 2011).
According to Hunter, loan servicing and loss mitigation have improved since the hiring of Steve VanSickler as VP and chief lending officer.
"Our loss numbers are significantly better than 2010, but we still are taking significant loan losses," Hunter said. "We cut expenses from $32 million in 2010 to $26 million in 2011. We still have net interest margin north of 3.7%, so some things are improving."
Silver State Schools had to take some "difficult steps" to cut its expenses, Hunter noted, including closing a number of branches, adjusting its compensation/benefits packages, and reworking vendor contracts.
"I cannot promise the future, but we think the era of dramatic cost-cutting is over," he said. "We think the branch network we have in Las Vegas is pretty good where it is now."
Silver State Schools has 10 branches, nine in Las Vegas and one in Reno.
Improving Lending
VanSickler said SSSCU's mortgage production has "picked up a little bit" recently. In a typical month it writes $3 million to $4 million in mortgages, nearly all of which is sold to Fannie Mae.
"Our underwriting standards have not changed from the borrowers' perspective; the changes mostly consist of tightening property guidelines," Van Sickler said. "We are in the process of retooling platforms that needed updating before we get aggressive on mortgages. We want to have tight controls over credit risk parameters and some quality control pieces."
A big part of this retooling is upgrading technology. VanSickler said Silver State Schools wants to make sure real estate loans are closed in conformity with regulatory platforms that have red flags built into the system.
"Manual processing of mortgages is a thing of the past," he declared.
Going forward, VanSickler expects the local housing market will still see declination in values, but there are some areas that are stable or rising. He noted some that in some areas of Las Vegas, older homes are being left behind by new construction. Homes built after 2000 are in high demand, but not those built prior to that.
"We just have to be careful about the neighborhood and the inventory in that neighborhood," he said. "In some neighborhoods there is competition when a home comes on the market."
One potentially major development coming soon is the advent of HARP 2.0. VanSickler said the original Home Affordable Refinance Program was "a joke" in Las Vegas, because it excluded borrowers who owed more than 125% of their home's value. In the new HARP 2.0, instead of 125% LTV, borrowers qualify if they owe less than the mortgage amount.
"This will make Las Vegas ground zero for refinances," VanSickler predicted.
HARP 2.0 applies only to loans held by Fannie/Freddie, which had to retool their systems to prepare for these new parameters, VanSickler said. At first it only will be for 30-year fixed-rate loans. In June the program will add shorter-term loans.
A Big Deal
Allowing upside-down borrowers to refinance is a big deal in hard-hit Nevada. VanSickler said he believes the market has already seen the major decline in values, but there still will be a further declination in 2012.
"This will be caused by people going away from older homes," he predicted. "There is stability in a number of areas."
Added Hunter, "Beyond that declination, even the most pessimistic economists believe values will start rising again in 2013."
In the case of members wanting to purchase foreclosed or distressed properties, VanSickler said the credit union typically does its standard appraisal analysis. "It just needs to meet current guidelines and borrowers need to meet income, asset and credit guidelines. There are lots of good buys in this market."
VanSickler said SSSCU has an "aggressive" loan modification system to keep its members in their homes and their cars. "Overall, our credit quality is good. New borrowers sometimes have issues, maybe 10% of them. But 35% of our first mortgage portfolio is paid more than a month ahead on their loans."
The credit union has not instituted additional income verification, VanSickler said, because it has always followed secondary market guidelines and never got involved in stated income lending. Debt ratios today have been reset to a traditional scale, he added.
"Other than upgrading technology and the knowledge level of employees, I think mortgage lending is mortgage lending," said VanSickler.
Hunter believes credit is not being taken by VanSickler. "Steve is understating the expertise he has brought to the process," Hunter interjected. "The procedures have been restructured and are much tighter and overall significantly improved."
The turmoil in the GSEs has not forced SSSCU to change practices.
"We are not trying to grow our portfolio," VanSickler said. "Our balance sheet is a little out of whack with long-term loans. We are trying to ramp up auto lending and other non-real estate lending to get the balance sheet balanced. We plan to get back into indirect lending. Just like the mortgage area we are upgrading technology and the knowledge of the staff."
Going Forward
American Share Insurance, the Dublin, Ohio-based private share insurer that insures Silver State Schools' deposits, made a $22-million loan in 2010 and an additional $4.4 million cash infusion in December 2011.
SSSCU's net worth ratio was 4.18% at end of 2011, after being 4.32% at the end of 2010. It has not had to take additional cash from ASI in the last three months.
