What Has Been Seen…

Growing up, I always heard, “Go with a credit union. Credit Unions are better than banks“. After getting pinched with one too many fees due to money being IN my account, but not posted yet, I began to agree with this. The little things that credit unions in Arizona like Arizona Federal Credit Union, or Desert Schools Federal Credit Union did for their members like immediately posting funds, being more personal and caring than banks, and offering more competitive rates in many cases, were very appreciated.

For over a decade, I’d found it was great dealing with credit unions and was happy to see our local credit unions grow. While they’re still experiencing a big boom in business, it does seem that even the credit unions aren’t immune to the market.

Several months ago, Marketwatch touched on why the credit unions were not tripping over themselves like the banks were:

However, despite instability in the mortgage-banking arena, America’s credit unions remain strong and safe for homeowners seeking solutions to their woes. The simple fact is conservative and prudent management policies kept credit unions out of the subprime mortgage mess.

What’s even more important in these uncertain times is that credit union mortgage loans are as good as or better than what’s being offered by banks.

With millions of homeowners falling into foreclosure, and millions of others not sure exactly what to do or whom to trust, many people believe the mortgage industry is at fault. So what’s it going to take for the public to start showing some respect to the credit union mortgage industry?

With all the talk of the mortgage crisis, home loan applications are up, interest rates are still low, and housing finance continues and that’s where credit unions come in.

Many foreclosure victims were duped into bad loans by unethical mortgage brokers, but how many of those originated at credit unions? We know that number would have to be tiny. In fact, newly announced regulations look like the Credit Union loan origination manual of recent years.

“Our slogan is, ‘Credit union’s stick to traditional credit union values, a world where people are worth more than money’” said Bob Dorsa, President/CEO of ACUMA. “This may be a slogan but it is also true. Even a casual study of U.S. economic history will ascertain, a turn-around is inevitable — and when it comes, credit unions that skillfully managed the crisis will be in an excellent position to prosper in the coming recovery.”

I’m inclined to agree here as well. I remember when applying for my first home, it was the home builder who approved me for my “nothing down” 100% financing. When I approached the credit unions, they simply showed me their packages and explained that they currently don’t offer a “nothing down” financing vehicle.

I left in a huff and a bit perturbed, but in retrospect, I can see how it has paid off in spades for them.

Did they lose my mortgage business and that of many others? Sure.

Did they regret it? I don’t think so.

Especially after they saw how many of us were defaulting on those very loans for one reason or another. While I was safe, it seems that most others in the same pool as me were not.

But as foreclosures, bankruptcies, short sales, and other signs of a failing economy grow closer to the larger more immune city populations, growing out of a problem in “the outskirts” of town, things have a habit of creeping up on you.

And it seems that while the credit unions are still following riding on solid foundations, they are feeling a slight pinch:

In a sign financial problems are spreading to credit unions, Arizona Federal last week reported a sizable first-half loss stemming from delinquent auto, credit-card and home-equity loans.

The Phoenix-based financial institution, Arizona’s second-largest credit union, said it lost $42.5 million over the first half of 2008, a sharp reversal from $10 million in net income for the same period in 2007.

Arizona Federal, which counts 29 branches and 220,000 individual members, reported sharp increases in delinquent loans and charge-offs. Delinquencies jumped to 3.4 percent of loans from 1.8 percent from a year earlier.

Ron Westad, the credit union’s president and chief executive officer, said the poor numbers reflect financial pressures faced by members, many of whom work for city governments around the state.

“Our members are having trouble carrying their obligations and meeting their commitments,” he said. “Our members are in harm’s way.”

Arizona Federal had tried to delay reporting some of the delinquencies in hopes of helping members avoid demerits on their credit reports, “but we just couldn’t do it any longer,” Westad said.

He predicted Arizona Federal’s performance for the second half of 2008 would improve and said the institution still has a solid capital position.

At midyear, Arizona Federal counted $71 million in loans one or more months delinquent. That was up from $48 million one year earlier but down from $90 million at the end of March.

Although Arizona Federal had the highest first-half loss, other Arizona credit unions are feeling pressure, too. Among larger credit unions, Arizona State and Truwest remain profitable but reported lower net income, while Arizona Central and First lost money.

Desert Schools, Arizona’s largest credit union, earned $9.8 million, down from $14.2 million in the first half of 2007.

An old Econ 101 teacher once said that smaller businesses are like a rowboat compared to the Titanics of the industry. While the larger corporations may enjoy the good, such as huge profits, marketshare, etc. They also suffer more of the bad when the tide gets rough. Where that small rowboat can make minor and effective adjustments when that iceberg is spotted at the last minute, ships like the Titanic… Well, they risk getting sunk.

I imagine we’ll see the credit unions rebound. This is not a death-knell for them, but it is a stern reminder that even solid foundations can tremble when you shake things hard enough.

Monday, July 28th, 2008  |  Visited 2,426 times  | 

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