A distressed financial market,thanks to the subprime mortgage meltdown,has left many wary about consumer lending.
That’s not the case for Orange County-based credit unions, which remain optimistic. Known for conservative lending practices, credit unions said such practices will help them weather the storm.
The not-for-profit organizations are member-owned and lack the pressure of shareholders pushing for larger profits.
Fears of a recession due to a weak housing market and the subprime mortgage crash have some local credit unions tightening their underwriting. Still, a good chunk of the county’s credit unions believe they’re well positioned to continue offering reasonable loans.
“We’re not hurt by the impact of the subprime mortgage meltdown since most credit unions have stayed away from exotic loans,” said Ryan Zilker, vice president of marketing and strategic planning at La Habra-based First American Credit Union. “I think credit unions should remain strong.”
First American, which specializes in several services including auto and home loans, plans to make tighter underwriting decisions on home loans going forward, Zilker said.
Although it has had a small percentage of loan defaults, Zilker said First American Credit is taking precautions to protect its members.
“Housing values are flat or slightly declining so that’s going to make us approach our home loans more cautiously. In the past we would underwrite 100% of the home value but now we’re going to tighten that,” Zilker said.
Huntington Beach-based NuVision Federal Credit Union, which also provides real estate services, believes it’s well positioned to take advantage of the market’s recent downturn.
“Our lending criteria has kept us from delving into the subprime market,” said NuVision’s Chief Executive Roger Ballard. “This meltdown has actually positioned credit unions as a trusted source for real estate lending.”
Local executives at credit unions agree that their members are supportive. In other words: They’re good about paying loans back.
“We’re fortunate to serve a marketplace that is accustomed to paying their bills,” said Mark Johnson, vice president of Brea-based Evangelical Christian Credit Union.
The credit union, which serves faith-based organizations such as churches and ministries, said it doesn’t expect to be affected by the subprime market’s fallout because of its conservative lending practices.
But credit unions’ conservative lending has pushed some of their members to other places to find loans.
“Some of our members did use other lenders to obtain these high-risk loans. We are trying to help these individuals on a case-by-case basis,” said Rudy Hanley, chief executive of Santa Ana-based Orange County Teachers Federal Credit Union.
OCTFCU said that while it’s slightly tightened its credit criteria, the union isn’t relying solely on automated underwriting systems to characterize its loans but rather each member’s circumstances.
Last month, the Federal Reserve cut interest rates by a quarter point to 4.5%. The move came after a half-point rate cut in September. The rate governs overnight borrowing between banks. It’s used as a benchmark for other interest rates.
The Fed’s recent cuts,spurred by the weakness in the housing market and the subprime mortgage crash,have left some credit unions optimistic about the industry’s ability to attract more members.
“Since the rate cut will make it cheaper for people to borrow funds from institutions, it should help boost credit union loan growth,” said Irene Soles, chief executive of Brea-based Union Oil Santa Fe Federal Credit Union.
While interest rate cuts could encourage more consumer spending and help credit unions attract more members, squeezing out profits will still be a challenge, Zilker of First American said.
