Valley credit unions feeling economic pinch

Loan delinquencies are soaring among local credit unions as more consumers are losing control over their finances. Leading the way is Arizona Federal Credit Union, which saw total loan delinquencies of two or more months jump from $16.5 million in first quarter 2007 to $56.5 million in first quarter 2008.

Arizona Federal is one of the nation's largest credit unions.

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According to the latest quarterly reports with the National Credit Union Administration, most local credit unions saw increasing loan delinquencies in the first quarter. The administration regulates, charters and supervises federal credit unions.

Nationally, the credit union industry's loan delinquency ratio declined slightly during the first quarter of this year primarily because of increased chargeoffs. A spokesperson with the association wasn't available for comment.

However, quarterly reports from several local credit unions showed continued increases in total loan delinquencies of two or more months. Desert Schools Federal Credit Union, for example, reported an increase in these delinquencies from $9.3 million in first quarter 2007 to $20 million in first quarter 2008.

Also, TruWest Credit Union's total loan delinquencies of two or more months rose from $1.54 million in first quarter 2007 to $5 million in first quarter 2008.

Arizona Central Credit Union and SunWest Federal Credit Union's loan delinquencies of two or more months dropped somewhat in first quarter 2008 after steadily increasing last year.

Troy Stang, Arizona Federal's vice president of marketing, said the credit union's loan delinquencies and defaults are on the rise as falling home values, rising mortgage payments, and employment losses adversely affect more of its members.

Many members who obtained adjustable-rate mortgages elsewhere are struggling with those loans, and, in turn, have fallen behind on loans the credit union did grant, such as credit cards, auto and personal loans, he said.

"In some cases, members have had to make decisions of who do you pay?" he said. "Do you pay your house payment? Do you pay your credit card? Do you pay your car loan?"

Arizona Federal remains in solid financial shape because it has accumulated reserves to cover any loans that aren't repaid, Stang said. Its assets totaled more than $1.93 billion in first quarter 2008, compared with $1.73 billion in first quarter 2007.

Desert Schools' strict underwriting standards have kept its mortgage delinquencies from rising as high as many other institutions, said Jason Meyers, director of marketing and public relations.

"Fortunately, many of our members are not facing foreclosure because they're not in those adjustable-rate loans," he said. "However, we do continue to get calls from consumers who are not our members asking for help and advice, and a lot of times we can't help them because they're in a situation where they've taken out a loan ... and they really can't get out of it."

With so many consumers struggling financially, Desert Schools is taking a "back to basics" approach with its members, providing education and advice to help them return to smarter saving habits, he said.

Douglas Lake, TruWest's executive vice president and chief lending officer, said the increase in delinquencies is directly tied to the economy, so as the economy recovers the number of delinquencies should subside.

"What we try and do is take each situation and try and manage it to the best outcome for both the credit union and the borrower," he said.