LAS VEGAS-Tourists are taking "staycations" rather than flocking to this gambling mecca in their usual numbers, resulting in layoffs at casinos, hotels and restaurants here in Glitter Gulch-and those layoffs strike at the heart of WestStar CU's field of membership-gaming industry employees.
Dan Paulson, CEO of WestStar, told Credit Union Journal a secondary issue is the decrease in home values here. "If members do not have the ability to sell their houses when they have a reduction in income, there are few choices unless they have savings or other assets to tide them over," he said. "By serving the gaming industry, WestStar CU has many members who have experienced reduced work hours or loss of job by the member or the member's spouse."
The $186-million credit union has developed a series of programs to help its members deal with these issues, Paulson reported. First, to combat distress situations caused by a loss of employment or a reduction in income, WestStar implemented a plan to lower the distressed member's payment for a period of time of up to 36 months. In some cases, he said, the payment is half or less for this time period.
"After the term is over the member's payment goes back to what it was plus a small amount more to cover the distressed period," Paulson explained. To qualify, the member must prove he or she has diminished income compared to the income when he or she applied for the loan.
"These loans were originated as fixed-rate loans. Even though members initially were able to make payments, when their income is reduced and they don't have other resources to back them up they have a problem. These loans are included in an increase in our Allowance for Loan Loss."
Six Distressed Loans Booked So Far
The 32,778-member WestStar has booked six distress loans thus far, he said. WestStar's member-assistance loan program for mortgages is similar to the distress loan, Paulson continued. He said the member makes only the principle portion of his or her payment plus impounds, such as taxes and insurance.
"In this instance the payment is usually substantially reduced because very little goes to principle in the first few years of a 30-year loan," he said. "The credit union absorbs the loss of interest income on the loan over the mitigation period up to 36 months. This is used in more severe distress cases of decreased income to the member."
As with the distress loans, the mitigated mortgages are included in and increase WestStar's Allowance for Loan Loss. In the case of second mortgages held by WestStar, Paulson said the credit union evaluates whether it can help the member by paying off the first mortgage and combining it with its second. In many cases, he said, this lowers the member's overall payment.
"This lowers the interest income we receive on the second mortgage, but the interest income from the first mortgage helps to offset that if it comes from low-yielding investments. There is a liquidity risk with these since they need to be held internally; we mitigated this risk through selling real estate loans nine months ago to gain liquidity."
WestStar is very busy in the collection area, Paulson said, while lending is steady but at a pace reduced 25% to 40% from 2007. The CU's deposit growth was positive during the first six months of 2008, "but has tapered off since then like it usually does for our credit union.
"We are basically flat for the year," he said. "Growth in the CD product would happen if banks were not paying a premium for deposits as they are now. My prediction is for a normal real estate market-defined by ample buyers and ample sellers to create a real market-by spring 2010."
