LJWorld.com / Credit unions appear to avoid turmoil

Business

October 6, 2008

The national economy is in turmoil, but a relative calm exists at state and local credit unions.

In fact, Kansas credit union assets increased 9.8 percent in the second quarter of 2008, according to the Kansas Department of Credit Unions. Later reports for this year could show a continuance of that trend as customers react to the volatility of the stock market and put more money in credit unions, said John Smith, administrator at the department.

"Here in Kansas we've been remarkably stable at this time," Smith said.

Another factor that could lead to increased deposits at the end of this year is the increase in the federal deposit insurance from $100,000 to $250,000, made possible by the national bailout legislation passed last week, Smith said.

Smith, however, said it was too early to tell what effect, if any, Monday's stock market tumble would have on credit unions. The Dow dropped more than 800 points before improving to about a 370-point loss by closing.

Credit unions nationwide and especially in Kansas did not get involved in subprime mortgage lending, which was at the heart of the Wall Street financial crisis.

"One of the things about credit unions is we serve the individuals," said John Beverlin, president and chief executive of Credit Union of Johnson County, which last month merged with Free State Credit Union in Lawrence. "We might loan a plumber money for a truck for his business but we don't do big real estate developments. We stay pretty much insulated."

Kansas has 87 state-chartered "natural person" credit unions that provide service to individual consumers.

By the end of June total loans were more than $546 billion and total assets amounted to more than $800 billion, according to the state.

Beverlin had not noticed any major increase in deposits in recent weeks because of the stock market decreases. Neither had Tina Christian, Lawrence branch manager for Midwest Regional Credit Union. And there haven't been any big withdrawals, they said.

"Everybody's just sitting on their money right now," Christian said.

Discussion

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6 October 2008
at 5:45 p.m.

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LogicMan (Anonymous) says…

LJW:

Can you get and publish data on the percent of mortgage loans that are in default with each of our local banks and credit unions?
6 October 2008
at 9 p.m.

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alm77 (Anonymous) says…

Logic, local banks don't hold mortgages any more. They sell them on the secondary market where they are bundled and sold as mortgage backed securities. Then on the market they are traded, owned and sold like stock*. It's when the mortgages went bad that everyone lost their money.

*I think it's actually more complicated than that, but you get the point.
6 October 2008
at 9:35 p.m.

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Sigmund (Anonymous) says…

alm77 (Anonymous) says: “Logic, local banks don't hold mortgages any more. They sell them on the secondary market where they are bundled and sold as mortgage backed securities. Then on the market they are traded, owned and sold like stock*. It's when the mortgages went bad that everyone lost their money.”

Don't know the policies of local Lawrence banks, but my Credit Union holds my mortgage. Of course they made me put 20% down, checked my credit score, and copies of my tax returns for proof of income. Since I could afford my home there was no Freddie nor Fannie involvement, a “conventional loan.”

I could have gone with Countrywide or mortgage broker and gotten a better rate than the 5.25% fixed 30 year, but it would have been sold and serviced by the highest bidder multiple times. I decided it was more important to deal locally with people who held my paper for the next 360 months. Given the horror stories I have heard about the mortgage brokers, it was worth the couple of basis points I would have saved. My understanding is most conventional loans like mine are held locally by most smaller lenders.

I talked to a guy today who bought his home 5 years ago for $180,000 at 5.25% fixed 30 year and now he only has $18,000 left to pay it off. The joys of making double monthly payments.
7 October 2008
at 6:30 p.m.

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greenworld (Anonymous) says…

Who is John Smith anyway? That sounds like a very familier name. Wasnt he involved in a big loss of taking down a local credit union? So seems a little bit funny that he can sit there and say credit unions dont assume loss and are growing stronger everyday. I highly doubt that with all the banks out there and unstableness right now. I will have to research it and find out the numbers and growth and if they are accurate with Smith's reporting. If everything is so strong then why would free state and alot of others feel the need to merge. Dah…. I guess I didnt expect Smith to get on here and pipe his horn on how much credit unions were failing.
7 October 2008
at 6:59 p.m.

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toe (Anonymous) says…

Thrifts represent the bottom of the barrel of financial institutions.