Member Relationships Buffer CUs

WALL STREET – The crisis in the mortgage industry has been slow to take hold among credit unions, but credit unions around the country, especially those with relationships with the troubled lenders, are weighing the impact of the current mortgage meltdown. Countrywide, which announced lay-offs this week, has correspondent relationships with hundreds of credit unions. American Home Mortgage, which shut down two weeks ago, had loan offices in more than 50 credit unions after telling its credit union and bank customers it could no longer fund mortgages it had committed to. But observers were confident the contagion of the subprime fallout will be limited. Southwest Corporate FCU was circulating a memo this week asserting that since many credit unions retain their mortgages, they have not sustained major losses in the subprime market. “In fact, most are in a stronger position to increase their mortgage loan activities,” said the memo by Brian Turner, manager of Southwest Advisory Services. Strict requirements barring investments in subprime mortgage backed-securities is also expected to limit the downturn in the investment market. Ray Amarino, head of the bond desk at credit union bond house First Empire Securities, noted that the major affects in the mortgage backed market has been on subordinated tranches or non-Triple A-rated pieces of the mortgage bonds. “Triple A pieces have not been downgraded, and credit unions don’t get involved in subordinated bonds,” said Amarino, who stressed the vast majority of credit union bonds are agency-issued, and therefore, insured. “We have not sold any subprime paper to credit unions, or banks, for that matter. We just don’t traffic in that kind of paper.”