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Credit union copes with 20 percent delinquency rate

Officials assure members' funds are safe, federally insured

APPLE VALLEY — After aggressively pursuing home construction loans during boom years, High Desert Federal Credit Union is now reeling from the weak real estate market.


The credit union is coping with 20 percent of loans at least two months delinquent and income losses totaling nearly $4.7 million for the first six months of this year, records show.


While the figures are sobering, credit union officials and independent credit union analysts say the institution remains solvent and safe and that deposits are federally insured by at least $100,000. Individual retirement accounts are insured up to $250,000.


“They are under normal supervision, which is our way of saying they are not under federal management or federal conservatorship or anything like that,” said John McKechnie III, director of Public and Congressional Affairs for the National Credit Union Administration.


The average rate of delinquencies for California credit unions reported in the first quarter is 0.93 percent, about 22 times lower than High Desert Federal Credit Union. The rates reported by local competitors are also lower: In June 2008, the delinquency rate for the San Bernardino-based Alta Vista credit union was 0.81 percent, and The Members’ Own, a credit union based in Victorville, reported a 7.06 percent delinquency rate.
The credit union stopped issuing home construction loans in May to minimize future losses, after specializing in those loans for more than 20 years, said company President Tom Brown.

 

“The real estate market has really had an adverse effect on banks and credit unions alike, and obviously High Desert was not immune to that,”said Ralph Ramirez, a spokesman for the Apple Valley-based credit union. “We’re taking each loan, each member, case by case, because each member has a different story to tell, and we want to do everything that we possibly can to meet their needs to help them recover.”


The rate of accounts delinquent by at least two months reported by the credit union has more than doubled since March, from 8.7 percent to 20.45 percent, which leaves the institution with $24.7 million in delinquent loans, according to NCUA records. Meanwhile, the amount in foreclosed and re-possessed properties has jumped from $340,155 in June 2007 to over $4 million in June 2008, the records show.


The credit union has taken several actions to improve the situation. In addition to cutting expenses across the board by 12 to 15 percent over the past seven months, High Desert Federal Credit Union downsized its full time workforce from 82 in December 2007 to 65.5. The company has also set aside $3.6 million for loan losses, up from the $600,000 set aside in February. About $2.8 million of the loan loss provisions are due to home construction loans, where members who built custom homes became overextended or could no longer afford to make payments, Ramirez said.


The credit union also strategically shrunk its assets down to $157 million — assets were at $180 million in June 2007 — by lowering the rates for members’ certificate accounts, which are safe investment deposits insured by the National Credit Union Share Insurance Fund. This helped the institution increase capital, which serves as a cushion against losses. Generally the higher the capital ratio, the more economically sound the institution.


The current capital ratio for High Desert Federal Credit Union is at 9.01 percent, slightly up from its June 2008 report of 8.85 percent. But it is still below the 10.62 percent first quarter average for California credit institutions, according to Terrin Griffiths, economist for the California Credit Union League.


Brown and Ramirez both said they expect the company’s numbers to improve as the year comes to a close.


“It’s in our opinion that we’ve seen the brunt of it,” Ramirez said. “Although we do expect to have some future losses, those losses are going to be much smaller than what we’ve experienced in the first part of the year.”


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