Credit Union Exposure to Exotic Mortgages Much Greater Than Previously Known

Credit Union Journal
July 13, 2009 | COMMENTS

NCUA's projections of increased losses on natural person credit unions are apparently being based on a stress test conducted recently on the National CU Share Insurance Fund that uses new data showing far greater exposure of credit unions to exotic mortgages, especially Interest Only and Payment Option loans, among other things.

Data newly collected on the 5300 Call Reports for the first quarter show that credit unions held more than $18 billion worth of Interest Only or Payment Option mortgages. Scott Hunt, director of the agency's Office of Corporate CUs, explained that those types of loans are going delinquent at increasingly higher rates.

At the end of the first quarter more than 800 credit unions had some IO or PO mortgages on their books, the data shows.

Most of the loans were held by large California credit unions; among them are Kinecta FCU, a total of $1.2 billion worth of IO and PO loans; SchoolsFirst FCU $754 million; North Island Financial CU $606 million; Lockheed FCU $396 million; The Golden 1 CU $390 million; Technology CU $374 million; Provident CU $373 million and Evangelical Christian CU $334 million.

BECU had the biggest exposure to such loans, a total of $1.2 billion.

Other big holders are Texans FCU $334 million; Meriwest CU $278 million; Mountain America CU $258 million; Desert Schools FCU $241 million; Digital FCU $234 million; Redwood CU $232 million; Wescom Central CU $188 million; Eastern Financial Florida CU $156 million; Mission FCU $192 million; California Coast CU $132 million and GTE FCU $90 million.

NCUA Chairman JoAnn Johnson told Congress a year ago she was confident credit unions had a negligible exposure to so-called exotic mortgages like IO and POs, but the agency didn't have any hard numbers, so the data was introduced on the first quarter Call Report.

The new data is believed to have been used by NCUA as it stress-tested the NCUSIF to determine whether more losses among natural person credit unions will force it to charge a premium later this year. The results of the NCUSIF stress tests will be made public in the fall.

This article appeared at www.cujournal.com and is reprinted with permission.