Friday, June 26, 2009

Don’t Make Risky Mortgages, Oh Really

North Carolina CU League President/CEO John Radebaugh was quoted last year as saying that "credit unions did not make risky loans like others did.”

However, Credit Union Journal (paid subscription) broke a story on June 25, 2009 that credit union exposure to nontraditional mortgage loans is much greater than initially thought.

This financial data provided by credit unions to their regulators obviously contradicts this statement made last year by Radebaugh.

About 800 credit unions, as of the end of March 2009, reported holding interest only (IO) and payment option (PO) real estate loans on their books worth almost $17.8 billion – $7.4 billion in first lien mortgages and $13.3 billion in other real estate loans.

Many of these credit unions originating nontraditional mortgages are located in California and the California real estate market has seen a sharp decline in real estate values.

In fact, some of these California credit unions have a significant exposure to these exotic mortgages. For example, Kinecta (Manhattan Beach, CA) with $4.1 billion in assets reported holding almost $1.2 billion in IO and PO real estate loans. Exotic mortgages represent 1/3rd of its total loan portfolio.

To view a list of the 50 credit unions with the largest exposure to IO & PO real estate loans, go here.

To Monsieur Radebaugh, I can only say – “Oh Really.”
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