WEST ALLIS, Wis. -
According to NCUA, the flurry of delinquent loans, including $3.1 million in mortgages, could continue to plague the $75-million ALLCO Credit Union, but ALLCO is reporting it has taken steps to rectify the situation. The loans were originated by ALLCO and were not made through a third party.
Already the credit union has had to issue a statement in response to a story in the Milwaukee Journal Sentinel that focused on losses. ACU Chairman Eric Hofhine stated on the credit union's website that, "Money referred to in [the] recent article as a 'loss' is actually reserve earnings transferred to a reserve for loan losses account," Hofhine wrote. "The reserve account represents what is mutually agreed upon by ALLCO, the [State of Wisconsin Department of Financial Institutions] and the NCUA as a conservative calculation of the current sub-prime and delinquent liability."
CU Adds $5.5M To Cover Charge-Offs
The credit union has added $5.5 million to its allowance for loan losses to cover potential charge-offs to the loans developed by the credit union, according to the report.
Hofhine's letter further notes that credit union re-organizational consultant Christine Dawe, who was brought in earlier in the year to replace former president Ralph Brunner, who resigned, is actively restructuring the credit union and staff members are attempting to help members responsible for the delinquent loans to work through their financial problems.
"Each loan that is successfully worked out results in a reduction in the loan-loss reserve account and an increase in the reserve earnings account," Hofhine's letter concludes.
Sub-prime mortgages are high-interest loans are granted to borrowers with low credit scores or carrying heavy debt, the higher rate of interest designed to offset the borrowers' apparent credit risk.
Rising Interest Rates, Rising Defaults
As interest rates rise, more and more borrowers have defaulted on such loans, a trend that also has affected ALLCO.
NCUA's call report identified the credit union as "significantly undercapitalized" to be supporting such a program. ALLCO posted a first-quarter delinquency rates compared to net worth of 35 times the rate of similarly-sized CUs.
ALLCO Executive Vice President Ken Mastenbrook, who served as interim CEO prior to Dawe's arrival, deferred reporter questions to the July 4 statement by Hofhine.
