SAN DIEGO -
The mood among many of the credit unions on hand for the California/Nevada leagues' annual meeting is likely to be lukewarm at best. Many areas in the two states, especially Las Vegas, have been hit hard by the crash in the mortgage markets, and that in turn is dragging on consumers willingness to borrow overall. Across Southern California, meanwhile, many credit unions are working to assist members whose homes or livelihoods were affected by the recent fires.
It isn't just California and Nevada feeling the economic slowdown, of course. Savings at credit unions declined in September, and loan growth slowed, according to the latest statistics from CUNA. But California, the state with the greatest amount of total CU assets, and Nevada, which had become a poster child for the new American hot growth markets, are emblematic of what lies ahead for many.
CEOs from CUs in both the Silver and Golden States told Credit Union Journal they are seeing fallout from this summer's subprime mortgage meltdown in areas of the balance sheet other than mortgages-including rising delinquencies in credit cards and consumer loans. Others have seen the market for home equity loans sputter as real estate prices have fallen.
According to estimates from CUNA released Oct. 31, credit union loan growth slowed to 0.6% in September, compared to 1.3% in August. Credit union saving balances declined 0.5% in September but have increased 4% year-to-date. Despite U.S. GDP growth of 3.9% during the third quarter, CUNA reported the credit union 60+ day delinquency rate (0.77%) is up slightly from August (0.73%), but remains lower than the 10-year average (0.81%).
How Decline Is Playing Out In Diminished ROA
Brad Beal, CEO of the $813-million Nevada Federal Credit Union in Las Vegas, told Credit Union Journal his CU is certainly seeing that "spillover effect" from last summer's credit crunch.
"Our consumer losses are up a little bit, and we are seeing a pretty significant slowdown in auto lending," he said. "The real estate market has slowed and prices have declined. There are more foreclosures, which is causing homebuilders to lower their prices, which in turn is cutting prices on the resale market."
In Southern Nevada, unemployment is up slightly and job growth is down, so there is a slowdown in the local economy, Beal reported. "Compared to most places in the country, it probably is still pretty attractive, but Nevada usually is red hot."
Wayne Tew, president and CEO of the $560-million Clark County CU, said his credit union is being "cautious" as it sorts through the full impact of problems in the Las Vegas housing market. He said CCCU is "very leery of appraisals right now," and has decreased the loan-to-value ratios it will give on home equity or second mortgage loans to protect itself.
"Our ROA has dropped-normally we are 2.5 to 2.6, but this year we are about 1.9. That's pretty good for most credit unions, but we're used to it being higher," he said.
Tew said CCCU has seen a significant increase in delinquencies and repossessions, particularly among people who work in the real estate industry, such as title company workers or real estate brokers.
"We have had a few problems with home equity loans we hold with people being behind. A few homes have been taken back, but nothing dramatic yet," he said. "If we can rewrite someone who has a first if we hold the second, we do. In several cases we've consolidated a first and a second to help them stay in their homes."
On the other hand, many homeowners who put little or no money down are simply walking away from their loans because they have no equity, Tew reported. He said consumers who bought homes within the last two years, after the prices appreciated rapidly from 2003 to 2005-and then took out adjustable-rate mortgages-are the ones who are in trouble.
Unexpected Developments In Member Behavior
In Manhattan Beach, Calif., the $3.9-billion Kinecta Federal Credit Union recently became the third-largest CU by asset size in the Golden State and moved into the Top 10 nationally.
Mark Joseph, Kinecta FCU's chief financial officer, said the credit union has seen several unexpected developments in recent months, including an influx of mortgage loans.
"Credit cards still look OK. We've had slower growth than we budgeted for, but delinquencies are OK," said Joseph. "We are the beneficiaries of the liquidity crunch-we had spectacular growth in mortgages in the third quarter. HELOC lending has been slower than we expected, but still is growing. People might be pushing off purchases because they are uncertain."
According to Joseph, the important numbers for Kinecta relate to the robust financial health of its membership. He said roughly 80% of Kinecta's total loan portfolio has a FICO score of 700 or better, and of its $1.8-billion residential real estate portfolio, it has just one non-performing mortgage loan-that of a member who is in bankruptcy.
Over the last four or five months, he reported, Kinecta has been the No. 1 lender for Credit Union Direct Lending (CUDL) in California, and "it's all good paper," he said.
"We don't do subprime auto loans, so we aren't hitting the problems others have," Joseph assessed. "Our underwriting standards have changed a little since the credit crisis. We decreased loan-to-value about 5% to lower our exposure. But there hasn't been a deterioration in the portfolio that would dictate we need to do a lot of changes.
"Again, with good FICO scores and a solid residential loan portfolio, we've done a very good job of being conservative underwriters, and we will continue to look every month at where the delinquencies are to see if we need to make any changes."
Reaching Out To Help, Not Pushing Panic Button
Kinecta has a branch in Malibu, which suffered through one of the many major wildfires to strike Southern California in recent weeks. Joseph said the credit union is prepared to assist its members who are having difficulty either from the fires or the credit crunch.
"We encourage our members to call us if they have financial problems. During the fires the past two weeks, we had a call-in line and we posted an item in the last newsletter about calling us if they had mortgage problems," he said. "We are trying to do it in a smart way, without hitting a bell and making people panic. The sky is not falling, so we don't want to act as if it is."
Similarly, Beal said Nevada Federal is "doing quite a bit" to help its members cope with any financial crises. He said his credit union did not engage in subprime mortgage lending, "so our folks are not experiencing the problems others have."
Nevada Federal has had a payday lending product for approximately three years. Beal said the volume on that product has picked up quite a bit in recent months. The credit union offers numerous financial literacy seminars to its members, which he said are designed to help people better manage their affairs.
"By the end of the year, we will have put on about 100 live seminars for various employer and community groups. Demand is growing as people are crying for help," he said.
Of course, not every member can be helped. Clark County CU's Tew said his credit union also avoided subprime lending, and when it does a first mortgage it brokers out the loan. However, he added, "Our problems have come from seconds that were written behind those types of loans. If people have gotten themselves so far under, by their own lack of prudence in their financial lives, it is far beyond what we can do. This is not a result of secondary market or ARMs; it is the inability to live within their means."
New Products Making Up For Loss In Mortgages
As a way of replacing lost income, Nevada Federal has instituted a new checking product, a new auto loan and a first-time homebuyer program. Beal said the latter is "doing pretty well."
"By the end of the year, we will have put about 50 people into homes, which we are really proud of in this environment," he declared. "There is more demand for services by people who need a little extra help, such as our 'New Start' checking account. Once someone gets reported to Check Systems, it is pretty hard to get another checking account anywhere. They have to enroll in financial counseling, and once they complete that we can give them another chance."
Nevada Federal remains "in good shape" in its lending portfolio. Beal said a recent addition this year is a program for people who have a few "credit blemishes, a "Specialty Auto Finance" loan that not designed as a subprime product, and which is designed for borrowers with scores as low as 550.
Another Year Of Uncertainty Ahead
Joseph said Kinecta FCU anticipates slower loan growth in the fourth quarter.
"Definitely slower than the third quarter. We're feeling pretty good right now. We are concentrated in the coastal zip codes of California, where there was very little subprime lending, if any, and real estate prices are holding up."
Predicted CCCU's Tew: "It will be about a year to a year and a half before we can breathe normally. It will take that long for the real estate market to recover. The home equity market has pretty much dried up because real estate valuations have dropped so low."
FOR MORE RESOURCES
www.nevadafederal.org
www.kinecta.org
www.ccculv.org
www.cuna.org
