‘Ripple’ Effect from Subprime Mortgage Meltdown Worries NCUA

WASHINGTON – NCUA is confident that credit unions themselves have little exposure to to the imploding subprime mortgage market but the federal regulator is concerned about a possible contagion effect on credit unions, NCUA Chairman JoAnn Johnson testified to Congress yesterday. “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 yesterday’s hearing on the meltdown in the subprime mortgage market. Johnson trouble 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 2-28s 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.