More lenders, including usually carefully managed credit unions, are reporting higher numbers of delinquent loans and foreclosures connected to subprime credit woes.
Last week, USA Federal Credit Union, with more than $700 million in assets and 22 branches, eliminated 30 positions because of a raft of problem loans, foreclosures and expectations of the same in this quarter.
Chief Executive Officer Mary Cunningham said although USA Federal hasn’t made any subprime loans, many borrowers are probably paying higher monthly mortgages on subprime loans they obtained from other lenders. Consequently, these borrowers are falling behind in paying off home equity loans and other loans from the credit union, she said.
“This (the subprime crisis) has very far-reaching effects,” Cunningham said. “Anybody who is in the business of lending money will be impacted by the subprime mortgage meltdown, and that’s just a fact.”
As of Sept. 30, USA Federal reported $3.4 million in delinquencies, or 0.56 percent of its total loans of $611.5 million. While the amount is comparatively small, Cunningham said more problems are surfacing.
“We anticipate more loan losses. We have reason to believe there are more foreclosures lurking, mostly mortgage equity lines, first mortgages and manufactured housing loans,” she said.
The credit union reported a net loss of $1 million through the nine months. It listed total foreclosed real estate and repossessed assets of $3.7 million, and total charge-offs, or problem loans classified as a loss, of $3.6 million.
Spiraling Trend
USA Federal isn’t alone in reporting a spike of borrowers who are paying late, or stopped paying altogether, said several local community bankers.
“I think we’re going to see a continuance of increased foreclosures for the coming year,” said Hans Ganz, chief executive for Pacific Trust Bank, which reported nearly $13 million in nonaccrual loans, or those past due 90 days or more and not accruing interest.
That made up 1.65 percent of the bank’s total assets of $770 million, compared to zero problem loans reported in September 2006.
Ganz said his bank carries no subprime loans but is not immune to the credit crunch occurring throughout the nation as housing values continue declining and borrowers are unable to refinance their loans because of those declined real estate values.
A recent survey of its licensed lenders done by the state Department of Financial Institutions found that 18 percent of all banks and 45 percent of all credit unions hold loans called “nontraditional” that totaled $7.1 billion.
The DFI survey defined “nontraditional” loans as those that permitted payment of interest alone on mortgages and forego payment on principal; payment option adjustable rate mortgages, or loans that had low teaser rates but would reset to higher rates connected to an index; loans made with reduced documentation; and simultaneous second lien loans.
The survey found the largest segment of the nontraditional loans as those permitting interest-only payments. Such loans made up $3.3 billion or nearly half of the total $7 billion. Delinquencies of 90 days or more made up $641 million, or 9 percent of the total.
Delinquencies Increasing
Joe Schroeder, chief executive of San Diego Metropolitan Credit Union, said his credit union is showing increases in delinquencies this year, mainly in its home equity portfolio. San Diego Metropolitan reported total delinquencies of $1.2 million, or 0.57 percent of its total portfolio, as of the end of September, compared to $879,000 in delinquencies, or 0.41 percent of total loans, as of September 2006.
“We’ve had one or two foreclosures, and I wouldn’t be surprised if we have another one or two before the year is out,” Schroeder said.
The credit union listed $1.1 million in charged off loans, or loans deemed lost and written off. Of that amount, the credit union recovered about $443,000.
While practically all lenders are seeing more delinquencies and problems in their loan portfolios, most assert the problems are manageable. They also say they cannot see when things should turn around.
“I don’t know where the bottom is, but it is not as bad as some are predicting,” Ganz said.
