Are credit unions positioned to absorb another round of foreclosures? Industry experts say yes, despite real estate reporting services releasing all-time high monthly and quarterly default numbers.
Irvine, Calif.-based RealtyTrac reported first quarter 2009 default notices, auction sale notices and bank repossessions were up nearly 24% from same period last year, affecting 803,489 U.S. homes, or one for every 159 housing units nationwide.
And, March's 341,180 filings were more than 12% higher than the next highest month on record since RealtyTrac began releasing its numbers in January 2005.
“Since much of this activity was in new foreclosure actions, it suggests that many lenders and servicers were holding off on executing foreclosures due to industry moratoria and legislative delays,” said James J. Saccacio, CEO.
Nevada had nation's highest state foreclosure rate in the first quarter, with foreclosure filings concerning one in every 27 housing units, more than five times the national average. Other states with foreclosure rates ranking among the top five in the first quarter were Arizona, California, Florida and Illinois.
In volume, California accounted for nearly 29% of the nation's total.
Daniel Penrod, economist with the California and Nevada Credit Union Leagues, said credit unions in those states “saw the writing on the wall” when it came to mortgages originated in 2005 and 2006, during the peak of the housing bubble, and provisioned accordingly.
“There's almost no way for there to be a correction without a large increase in foreclosures, so credit unions made provisions when they could, and have continued to do so,” he said.
CUNA Economist Mike Schenk said it's “anybody's guess” whether or not credit unions provisioned enough to handle 2009's foreclosures and 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 provisions ended up being about 85 basis points, definitely the highest level in modern history,” he said. Most credit unions increased provisions significantly in the fourth quarter alone, he said, to the tune of 134 basis points annualized.
Schenk recalled that just a couple years ago, regulators and accountants were cautioning credit unions that they were provisioning too much. That's not the case anymore, he said.
Additionally, Penrod said credit unions “were doing loan modifications back before they were cool,” and are ahead of the pack when it comes to modifications and other ways to prevent foreclosure.
In fact, Penrod said he's forecasting mortgage loan growth for California and Nevada credit unions, saying record foreclosures in the two states isn't enough to sour credit unions on mortgage lending.
“Overall, credit union loan portfolios are still relatively strong, and we're expecting new dollars, in addition to refinancing by existing members,” he said. “Mortgage rates are at an all-time low, and refinancing makes sense for those in a position to do it.”
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