California Mortgage Defaults on the Rise; Are Credit Unions Sharing the Burden?
SAN DIEGO -- As the real estate market continues to cool nationwide, the forecast for California lenders may be the chilliest of all.
According to La Jolla, Calif.-based DataQuick Information Systems, mortgage lenders sent 26,705 default notices to California homeowners during the third quarter of 2006. That marks a 28% increase over the previous quarter, and the highest figure in four years.
The statistics firm, which has tracked real estate statistics since 1992, is quick to point out that third quarter default numbers are still below the organization's average figure of 32,653. And while 2006 has brought considerable increases in late payments, it doesn't compare to figures from the housing crash of the mid-'90s, when the Golden State recorded 59,897 default statuses during the first quarter of 1996.
How are credit unions faring? Many credit unions scrambled to offer riskier loan products that appealed to consumers, like interest-only and adjustable rate products; however, credit unions are reporting that they stopped short of underwriting practices that would compromise the credit union's stability.
And as a result, credit unions are finding themselves relatively immune from the financial stumbles that accompany market corrections.
Scott Norris, senior vice president, real estate, at $3.4 billion San Diego County Credit Union, serves a community that is experiencing some of the largest market corrections in the state.
San Diego saw a 4.4% decrease in median home prices during September 2006, and recorded a 160% increase in default notices during third quarter 2006 over the same quarter 2005.
San Diego County Credit Union, however, is not experiencing any default increases, Norris said.
"We portfolio 100% of our real estate loans, but we're pretty conservative. We're about fifty-fifty ARMs to fixed rate mortgages, and our typical loan is about 60% loan-to-value, which is why we don't have any delinquencies. We never got into the high loan-to-value stuff that you read so much about," he said.
Although Norris said his credit union hasn't experienced a foreclosure since "literally the '90s", the VP said his organization's management team has made adjustments to underwriting practices, tightening approval reigns during the past couple of years as the market has cooled.
Reports from Northern California aren't much better, according to DataQuick. The number of homes sold in the nine-county Bay-area decreased nearly 30% from September 2005 to September 2006.
According to DataQuick, a decline in sales figures is normal in September; however, the group also noted that September 2005's Bay Area sales are that month's lowest since 1991.
Making matters worse, the Bay area also marked a 90% increase in foreclosures from 3rd quarter 2005.
Chris Caputo, manager of collections at San Jose-based Meriwest Credit Union, said his institution hasn't experienced an increase in mortgage delinquencies; in fact, delinquency rates are the same as they were one year ago.
Caputo credits the quality of Meriwest's portfolio, along with a little luck, as reasons the organization is bucking the mortgage default trend.
The collector did say the $1 billion organization has seen an increase in home equity delinquencies, recording a 0.38% delinquency ratio in September 2006, compared to none in September 2005.
Caputo said he's not sure why the credit union is seeing such an increase in Home Equity delinquencies, while mortgage payments continue on time as before. However, he recalled the credit union had worked to increase home equity loan volume during the past few years, so increased delinquencies could be the result, at least in part, of simply more home equity loans. --firstname.lastname@example.org