WASHINGTON -
During a congressional hearing on the regulatory response to the subprime meltdown, the NCUA Chairman said she is confident that credit unions themselves have little exposure, but the federal regulator is concerned about a possible contagion effect on credit unions.
"Federally insured credit union mortgages are performing well, in relation to the broader mortgage market, but NCUA is concerned about the 'ripple affect' of the dislocation to the subprime mortgage market on federally insured credit union and credit union members," Johnson told the House Financial Services' subcommittee on Financial Institutions, during last week's hearing on the meltdown in the subprime mortgage market.
Mortgage lending in credit unions has continued to grow, even as the general mortgage market has declined, Johnson said. Mortgage lending increased more than 10% last year and is now composed of nearly half of all credit union loans-easily exceeding auto loans, the old credit union mainstay.
Johnson said troubling signs have emerged in the credit union industry in the way of rising delinquencies and foreclosures, though at a much lesser pace than for banks and other mortgage lenders. For example, mortgage loans delinquent over 30 days rose from 0.79% at year-end 2005 to 0.99% at year-end 2006, but still less than a fourth of the rate for banks. In addition, mortgage loans subject to foreclosures among credit unions soared 20% over the last three quarters to $165 billion.
But Johnson said credit unions generally don't engage in the most infamous kind of subprime loans, like 2-28 ARMs, mostly because they don't have programs that are sophisticated enough, but also because federal interest rate caps of 18% would bar the add-on fees and charges that are causing many subprime borrowers to default. This has left credit unions with just a tiny slice of the subprime market, Johnson told lawmakers.
"Federally insured credit unions' holdings of mortgage loans represents a relatively small part of the overall mortgage market," Johnson told the lawmakers. "Mortgage lending in federally insured credit unions is mostly comprised of traditional fixed mortgages where the risk of prepayment shock or negative amortization is minimal."
However, she cited some credit unions that have adopted subprime lending in a way to help low-income and other underserved members.
The NCUA Chairwoman told Congress the regulator has undertaken a variety of initiatives to teach credit unions of the risks of new and exotic mortgage products, but has also stepped up its vigilance of risky portfolios during exams.
