NCUA, Bank Regs Warn Congress of More Failures

Credit Union Journal | Friday, October 16, 2009

WASHINGTON — NCUA told Congress it expects growing losses on mortgages and member business loans to combine with billions of dollars of losses trickling down from troubled corporate credit unions to cause increasing credit union failures into 2010 and 2011.

Most troubling is that more of the problems are expected to be among larger credit unions, those over $100 million in assets, said NCUA Chairman Deborah Matz during a hearing last week before the Senate Banking Committee. "Troubled credit unions with over $100 million in assets have grown at a faster rate than those with assets under $100 million," the NCUA Chairman told Senators.

At the end of September there were 66 credit unions over $100 million that NCUA considered troubled (CAMEL 4 or CAMEL 5), compared to just 12 in 2007. In recent weeks there have been four failures of credit unions that were once over $100 million. Through the end of September there were 21 credit union failures this year at a cost of $95 million to NCUA, with more losses expected. "NCUA anticipates the overall number of troubled credit unions is likely to increase through the end of 2010 and into 2011," said Matz.

NCUA said the cost of the 21 CU failures has been $95 million so far, which is about a third of the $270 million cost of last year's failures, but is expected to grow in coming months. The losses among CUs the past two years and the increase in federal deposit insurance coverage caused NCUA to charge credit unions a $1.1 billion premium last month to replenish the reserves of the National CU Share Insurance Fund, with additional assessments predicted for 2010 and 2011.

Matz told lawmakers last week that continuing losses among corporate credit unions, especially U.S. Central FCU and WesCorp FCU, are trickling down to natural person credit unions and adding to growing losses on mortgage and member business loans.

The NCUA Chairman said member business lending continues to be a small part of credit union portfolios, just over 3%, but an increasing amount of them are held by troubled large credit unions. MBL delinquencies for a group of 71 large credit unions watched by NCUA for supervisory concerns soared from just 0.17% to 8.34% over 42 months, more than double the 3.19% for all credit unions, said Matz. A similar trend is occurring for MBL charge-offs. "NCUA is concerned with the increasing levels of delinquent member business loans, as well as an increasing concentration of large credit unions with supervisory concerns which are holding member business loans," she said.

The NCUA chairman noted delinquencies and losses continue to rise to all-time highs for credit unions putting growing numbers of credit unions with high concentrations of mortgage loans at risk. Also troubling, she said, is the record-low mortgage rates, which are causing credit unions to take on new interest-rate risk as they boost mortgage refis and make new home loans. "While NCUA recognizes the benefit to consumers of refinancing higher rate real estate loans into lower fixed rate loans, NCUA is concerned with the increasing interest rate risk associated with a high level of fixed rate, long-term assets should rates rise rapidly," said Matz.