‘There’s no credit crunch here,’ says James Harris, CEO of the USE Credit Union

A now widely mocked Associated Press story recently suggested in near biblical terms the United States, and world in general, were spiraling out of control, especially economically. Certain times are hard for many of us and our families, friends and co-workers. But our financial system, and in particular credit unions, remain in overall good health.

Evidence of this is available in a report by the California Credit Union League. Summarizing 2007, the league found that assets at California CUs grew by 3.93 percent, off only about 0.5 percent from the robust 4.5 percent in 2006. First mortgages grew by 13 percent, and other real estate loans grew by almost 9 percent. OK, maybe California was late to the funeral. But no: nationally, first mortgage loans at CUs grew more than 15 percent. More impressive still was CUs’ delinquent loan portfolio, which by AP standards, should be “spinning out of control.” Instead, delinquencies rose 0.26 percent, and are still less than 1 percent.

Coupling that with a charge off to average loans ratio of 0.51 percent, up a mere 0.06 percent over the previous year, the CCUL concluded, “Credit unions are exhibiting impressive financial strength.”

So what happened? After all, if the national economy is 70 percent dependent on consumer spending and is in the emergency room, credit unions — which are nearly 100 percent dependent on consumers — should be in intensive care.

Actually, like the 94 percent of homeowners whose mortgages are not in default, most credit unions did not overextend and now are reaping the benefit.

“Credit unions didn’t change their lending structure to meet the boom market,” says Daniel Penrod, industry analyst at the CCUL, which represents about 500 credit unions throughout the state. “We didn’t loosen our lending criteria, and we didn’t suffer the losses banks did. So, while credit unions didn’t make as much hay as the banks did when the sun was shining, when the rains came, we didn’t get as wet. As a result, it’s more or less business as usual.”

Locally, executives at San Diego credit unions are ready to lend. “There’s no credit crunch here,” says James Harris, CEO of the USE Credit Union, with 60,000 members and about $850 million in assets. “We have money to lend and liquidity is very good.” In fact, Harris says USE has allocated about $20 million in funds to potential real estate loans for members who want to refinance on more manageable terms.

Credit unions post a “loan to shares (assets)” ratio that tells how much of the CUs’ assets are currently on loan. USE’s ratio is 95 percent, which speaks to healthy loan demand in the San Diego market.

“We’re here to support the members so it’s important that we have funds available when they have the need,” Harris says. “In the past, we’ve been over 100 percent loan to assets, and if we have to borrow to support the members, we’ll do it.”

Gene Roberts, CEO of the Financial 21 Credit Union with 12,000 members and about $140 million in assets, says he finds local conditions for lending better than expected.

“We have an open enrollment where our business development specialists go out to one of our (member generating) companies and open accounts and the report I got back was 85 percent of the people they talked to were interested in mortgage loans offers,” Roberts says. “That’s way high — it’s usually around 30 percent to 50 percent.”

Roberts says the big banks’ underwriting excesses are working to the advantage of credit unions. “We know mortgage credit lines at banks are tight because of all the subprime losses, but what’s going through the credit union industry right now is that it’s an opportune time to take advantage of what’s going on,” he explains.

Generally, in a downturn, consumers start saving for fear of losing a job. Harris and Roberts say their members have slightly increased savings. Penrod says more members are stashing cash in IRAs and money market accounts, which is surprising as conventional wisdom would seem to point to more liquid accounts, like standard savings.

“Those members that didn’t completely stretch themselves, with a new house or a second car, have extra cash, and now that rates on regular savings have dropped, they’re looking at CDs and accounts that have higher returns,” he says.

Harris, however, says the USE members who are saving favor shorter term CDs that are more liquid in nature.

Unlike many in the media, credit union analysts see a brighter future for the economy as whole, although it could be a while coming.

Recovery curves are being plotted out on a “LUV” graph. For example, some pessimistic economists see an “L” shaped future, where the economy hits bottom, and slides along that bottom for an indefinite period. Others see more of a “U” shape, where a bottom is reached, extends for a period, and slowly rebounds. Optimists predict a traditional “V” rebound, where the bottom is short lived and followed by sharply increasing activity.

“I’m the U group,” says Roberts. “I see us reaching a bottom, sitting there for about 12 months, and then slowly coming out of it.”

Harris and Penrod agree. “There are opportunities,” Penrod says, “but there will be a time when the economy just moves sideways, like what Wall Street’s doing now.”