APPLE VALLEY, Calif. - The figure is as staggering as it was eye-catching: 20.45% of loans were delinquent at High Desert FCU as of June 30.
The reality, according to a spokesperson for the $154-million credit union in the heart of a region slammed by foreclosures, is bad, but not as bad as it might look to outsiders.
Nevertheless, the credit union has placed a moratorium on home construction loans. "That number [20%] is a little misleading," said Ralph Ramirez, High Desert FCU's vice president of marketing and communications. "We have $11 million in home construction loans that have been performing since the start. Under the rules of GAAP, they have exceeded their maturity date so we have to report them as delinquent, even though they are not. All of the loans are current."
As is the case with many areas in California, Nevada and Florida, this was a booming center for home building just two years ago. Apple Valley, along with nearby cities Barstow, Victorville and Hesperia, experienced explosive growth from 2003-2006. Ramirez said the area-referred to by Southern Californians as the "high desert" due to its place on an elevated, dry plateau east of Los Angeles and the San Bernardino Mountains, saw such a backlog in home construction, the time to complete a house shot up to 18 months from 12 months. The backlog is the chief reason why many of the loans already are past their maturity dates.
"Then, when the market value went down, the value of the loan exceeded the value of the property," he explained. "We are working very closely with each member on a workout loan. The members obviously don't want to lose their homes, as evidenced by their keeping their loans current. And our objective is to make sure the members stay in their homes."
If High Desert were not required by GAAP to include the $11-million in loans that technically are late, its delinquency ratio would be 9.83%, Ramirez said. That figure is still considerably higher than average, and Ramirez said it is again real estate that represents the bulk of those problems.
"We did not participate in subprime lending, it is important to point out that, but there has been a very interesting situation over the past 12 months," he said. "We are finding some members have overextended themselves and simply cannot make payments, and we have been forced to foreclose. We did everything we possibly could to keep them in the loan, but if the loan is overextended, people cannot make payments."
As of June 30, High Desert recorded total foreclosed and repossessed assets of $3.3 million. As of July 31, Ramirez said, that figure has dropped to $2.4 million, meaning the 13,500-member CU successfully sold 27% of the foreclosed properties on its books. Through March 31, the credit union reported capital of 9.63%.
"We are very confident we are going to get through this," Ramirez declared. "We have taken the brunt of the losses during the first quarter of this year, but we have seen losses slow down, and we are having success with our workout loan program.
"In March, we instituted a moratorium on home construction loans," he continued. "This is a long-term decision based on everything that is happening in our local real estate market. We are focusing on getting people into long-term financing. When we get those cleared out, we will reevaluate whether we wish to get back into home construction loans."(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
