WASHINGTON – NCUA told Congress this afternoon that it expects growing losses on mortgages and member business loans to combine with billions of dollars of losses trickling down from troubled corporate credit unions to cause increasing credit union failures into 2010 and 2011.
Most troubling is that more of the failures are expected to be among larger credit unions, those over $100 million in assets, said NCUA Chairman Deborah Matz during today’s hearing before the Senate Banking Committee.
"Troubled credit unions with over $100 million in assets have grown at a faster rate than those with assets under $100 million," the NCUA Chairman told senators.
At the end of September there were 66 credit unions over $100 million that NCUA considered troubled (CAMEL 4 or CAMEL 5), compared to just 12 in 2007.
In recent weeks there have been four failures of credit unions that were once over $100 million: California’s The Members Own CU; West Texas CU and Nevada’s Community One FCU and Clearstar Financial CU, and the NCUA has taken over a fifth, Keys FCU in Key West, Fla. Through the end of September there were 21 credit union failures this year at a cost of $95 million to NCUA, with more losses expected. "NCUA anticipates the overall number of troubled credit unions is likely to increase through the end of 2010 and into 2011," said Matz.
Matz was testifying alongside the heads of the FDIC, Federal Reserve and other banking regulators on the state of the banking industry.
The congressional testimony by Matz, her first as NCUA Chairman, comes in contrast to that of former NCUA Chairman JoAnn Johnson, who gave the Senate Banking Committee a much more positive outlook when she testified just 15 months ago. "While the data shows the industry is not entirely insulated from the adverse impact of the real estate lending crisis, it also supports the strong risk management principles effectively implemented by federally insured credit unions nationwide," Johnson said during her June 2008 appearance before the committee.
Matz told lawmakers yesterday that continuing losses among corporate credit unions, especially U.S. Central FCU and WesCorp FCU, are trickling down to natural person credit unions and adding to growing losses on mortgage and member business loans.
Matz said member business lending continues to be a small part of credit union portfolios, just over 3%, but an increasing amount of them are held by troubled large credit unions. MBL delinquencies for a group of 71 large credit unions watched by NCUA for supervisory concerns soared from just 0.17% to 8.34% over 42 months, more than double the 3.19% for all credit unions, said Matz. A similar trend is occurring for MBL charge-offs.
The NCUA Chairman noted that delinquencies and losses continue to rise to all-time highs for credit unions putting growing numbers of credit unions with high concentrations of mortgage loans at risk.
