CONCORD, Calif. -- Cal State 9 Credit Union, now operating under a Cease and Desist order from the Department of Financial Institutions, the contents of which have been kept confidential is trying to dig its way out of what seems a mountain of loans gone bad.
"In early September, Cal State 9 Credit Union received an order from the Department of Financial Institutions," acknowledged president Jackie Wong. "Cal State 9 CU is in full compliance with the order, and has been for some time. We are continuing to work closely with both our state and federal regulators to serve the best interests of our members. Cal State 9 CU's daily operations remain business as usual, and we are continuing to focus on meeting our members' financial needs with the excellent service we've always provided," he added.
At the end of March, delinquency was 5.09%. In June it jumped to 6.81%. In March the CU had $19.4 million in delinquencies and in just three months it had $26.3 million. That's a 35.4% spike in the delinquent loan ratio in the June quarter. September's figures are not yet available, but the foreboding threat of the 1-2 month delinquency category poses huge losses as it is $17,119, 919. If a substantial portion of those loans goes into default and then to foreclosure, Cal State 9 will face very tough times.
Making a complicated situation worse, Credit Union Times has learned from sources that the state of California has withdrawn its $20 million non-interest deposit from the CU, likely in two installments of $10 million each, in July and August, respectively. After trying for more than one week to confirm the withdrawal with state officials, a spokesman for the Department of Finance would neither confirm nor deny the withdrawal and calls to the California State Treasurer's office were not returned at press time.
"Our staff has been able to speak with the acting director of the state's Department of Financial Institutions, who confirmed that her department did indeed place the cease-and-desist order that you referenced, and that regulations prohibit discussing the details behind the order with anyone outside of her Department--Including the Department of Finance. As such, we do not have any information in-house that would be responsive to your request. Any further inquiries on the order and its length should be directed to the Department of Financial Institutions, said H.D. Palmer, communications director for the Department of Finance.
The mounting losses from HELOCs and the state's withdrawal make for a troublesome mix. Wong generalized the CU's problems, alluding to problems in the real estate market, saying, "The recent historic downturn in the real estate market, compounded by rising interest rates, has impacted most financial institutions that offer home loans, affecting even prime mortgage borrowers. We are seeing this trend across the industry from some of the largest and most respected financial institutions. In this environment, it is not uncommon for borrowers to become delinquent and, like others, Cal State 9 Credit Union has seen our loan delinquencies increase as a result of the decline in the housing market."
Wong also said that Cal State 9 "has a team in place dedicated to this issue, and we continue to look at every option that is in the best interests of our members. We have taken a number of steps to address the situation and minimize our future risk while continuing to serve the needs of our members. This includes working closely with our members to structure modified loans that will help them keep their homes, discontinuing our home equity loan program, ramping up our collection efforts, and working to adjust the composition of our loan portfolio and our business strategies to reflect the realities of today's market, among other steps."
One of those "other steps" is likely to raise money, as much as they can, despite the cost of funds. And a CD rate of 6% for 7-months may pull in some of that needed cash. The special 6.00% APY 7-month share certificate has a minimum deposit of $5K, and the maximum deposit is $50K. It is only available to new members and can also be opened in an IRA. It began sometime in late summer.
This special isn't listed on the CU's Web site but it is still available. Given the Fed's recent rate cut, it may not be around too much longer. Calls to Cal State 9 seeking information on the state's deposit withdrawal and how much new money has been raised by the CD offer were not specifically addressed. However, CEO Wong responded by saying that, "the credit union's current line of credit is $75 million, which is more than adequate to meet our anticipated needs. As is our standard practice, we're continuing to work closely with our state and federal regulators to make sure the best interests of our members are served."
Membership and the CD offer is open to all who reside, work or attend school in Alameda, Contra Costa, San Francisco, Sacramento, or Santa Clara counties. Students and employees and those enrolled in alumni associations of certain universities are also eligible.
One of the "team" members Cal State now has on board is Judy Hurst. Hurst was CEO of UNOCAL for almost seven years, when it was merged with Wescom CU. UNOCAL was near the $100 million-asset range, much smaller than Cal State. Hurst is not known to be a real estate workout specialist, which gives rise to the possibility that a merger is in the offing.
A federal agency source that asked for anonymity told Credit Union Times that Cal State's financials are indeed "tenuous" and would not discount the possibility that a merger would happen.