Cal State 9 Credit Union Posts Heavy HELOC Losses
CONCORD, Calif. -- No one wants to talk about the losses or how (or why) they have skyrocketed. At a time when real estate, especially subprime real estate investments are deemed too risky for all but the biggest, edgiest players, Cal State 9 Credit Union here is posting some incredible (loss) numbers.
At the end of 2006, the $463 million Cal State 9 Credit Union here had foreclosures totaling $1,119,000 on its books. These loans, commonly referred to as REOs, or Real Estate Owned, are not counted as delinquent because they are foreclosed assets that are owned by the credit union. But at the end of March 2007, foreclosures shot to a stratospheric $8,419,000. That seemed a truly mind-boggling number to several credit union officials, at least one of who is a CPA, Credit Union Times consulted for analysis on this story.
In all of 2006 Cal State 9 loans charged-off a totaled $2,104,224. In just the three-month period ending in March 2007, Cal 9 charged-off $2,289,290. That's more loans charged off in the first quarter of 2007 than in all of 2006.
Total delinquency continues to increase despite massive charge-offs and an accelerated foreclosure program. In December 31, 2006 delinquency was $16,586,694 as compared to $19,457,524 in March 2007. Cal State 9 CU has assets of $463,727,995 and almost 30,000 members.
A comparison of Cal 9's NCUA 5300 report of March 2006 versus March 2007:
- Foreclosures -- March 2006 = $59,833 versus March 2007 = $8,419,000
- Delinquency in $ -- March 2006 = $4,087,000 versus March 2007 = $19,457,524
- Delinquency % -- March 2006 = 1.49% versus March 2007 = 5.09%
- Charge-off % -- March 2006 = 0.52% versus March 2007 = 2.26%
It is difficult to determine how many foreclosure REOs are represented by the $8 million figure from the March 2007 5300 report because it might be as many a 60-75 separate properties. It's also a guess as to where these properties are located, as they may not all be in California. In fact, they could be almost anywhere.
Despite repeated calls to Cal State 9 Credit Union CEO Jackie Wong seeking an interview, no calls were returned. Credit Union Times also made several attempts to reach Chief Financial Officer Richard Headrick. Finally, Josette Gonzalez, executive administrative assistant relayed a set of questions to Mr. Wong as a prelude for an interview. Credit Union Times received the following reply on May 24: "At this time, Jackie Wong, President/CEO, graciously declines the request for an interview."
Cal State 9 delinquency percentage has zoomed by the quarter in the last 12 months as shown in the chart below:
- Delinquent Loans / Total Loans
12/05 3/06 6/06 9/06 12/06
- Delinquent Loans / Total Loans
0.80 1.49 1.65 2.40 4.71
How Cal State 9 came to such a high concentration of loans in higher risk HELOCs, 78% of the loans are in 2nd TD HELOCs, remains a mystery. They might have been bought from an outside vendor. But why the credit union chose to go so deeply into the sub-prime arena is an unknown. The yield on these loans is in the 12% area, so they are subprime, yet how they may fit into
Cal State's ALM policy is another question that remains unanswered.
California regulator Beth Dooley also declined to discuss losses at Cal State 9. "I'm sorry, but due to confidentiality concerns, I cannot discuss the financial condition of any particular credit union," she said.
Seeing losses mount is surely a deep concern to Cal State 9 officials, and they may be pursuing whatever recourse they may have to stem the bleeding. If they did buy from a vendor, perhaps there is recourse for buy back as the loans default. It is also worth considering the process of due diligence that placed the CU in the current precarious position as well as a thorough examination of whatever collections options may exist, whether it be in house or outsourced.
Paying off the first mortgage on a defaulted second may be an option, but in that case, the CU would be responsible for upkeep, taxes and maintenance on any properties. That could present logistical problems if the properties are located out of state. It would entail hiring a company, or several, to do property management, repairs, upkeep, etc., on the properties, all of which must be paid for by the credit union. Each property has to be sold through a local realtor and a commission must be paid to that realtor.
Finally, the sale of properties may prove difficult in the current sluggish real estate market (depending where they are located). And if they could be sold in bulk then any buyer would likely seek a deep discount.
Credit union industry experts consulted for this story said the spike of 5% delinquency in total loans is considerable and would be a concern for any credit union.