Are credit unions positioned to absorb another round offoreclosures? Industry experts say yes, despite real estatereporting services releasing all-time high monthly and quarterlydefault numbers.
Irvine, Calif.-based RealtyTrac reported first quarter 2009 defaultnotices, auction sale notices and bank repossessions were up nearly24% from same period last year, affecting 803,489 U.S. homes, orone for every 159 housing units nationwide.
And, March's 341,180 filings were more than 12% higher than thenext highest month on record since RealtyTrac began releasing itsnumbers in January 2005.
“Since much of this activity was in new foreclosure actions, itsuggests that many lenders and servicers were holding off onexecuting foreclosures due to industry moratoria and legislativedelays,” said James J. Saccacio, CEO.
Nevada had nation's highest state foreclosure rate in the firstquarter, with foreclosure filings concerning one in every 27housing units, more than five times the national average. Otherstates with foreclosure rates ranking among the top five in thefirst quarter were Arizona, California, Florida and Illinois.
In volume, California accounted for nearly 29% of the nation'stotal.
Daniel Penrod, economist with the California and Nevada CreditUnion Leagues, said credit unions in those states “saw the writingon the wall” when it came to mortgages originated in 2005 and 2006,during the peak of the housing bubble, and provisionedaccordingly.
“There's almost no way for there to be a correction without a largeincrease in foreclosures, so credit unions made provisions whenthey could, and have continued to do so,” he said.
CUNA Economist Mike Schenk said it's “anybody's guess” whether ornot credit unions provisioned enough to handle 2009's foreclosuresand related losses, but said credit unions tend to be conservative,and probably did put enough aside.
“From the data we saw in the fourth quarter, 2008's provisionsended up being about 85 basis points, definitely the highest levelin modern history,” he said. Most credit unions increasedprovisions significantly in the fourth quarter alone, he said, tothe tune of 134 basis points annualized.
Schenk recalled that just a couple years ago, regulators andaccountants were cautioning credit unions that they wereprovisioning too much. That's not the case anymore, he said.
Additionally, Penrod said credit unions “were doing loanmodifications back before they were cool,” and are ahead of thepack when it comes to modifications and other ways to preventforeclosure.
In fact, Penrod said he's forecasting mortgage loan growth forCalifornia and Nevada credit unions, saying record foreclosures inthe two states isn't enough to sour credit unions on mortgagelending.
“Overall, credit union loan portfolios are still relatively strong,and we're expecting new dollars, in addition to refinancing byexisting members,” he said. “Mortgage rates are at an all-time low,and refinancing makes sense for those in a position to doit.”
–[email protected]