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alstry (< 20)

TIME to be CONCERNED!!!!!!!!!



August 12, 2008 – Comments (8)

APPLE VALLEY — After aggressively pursuing home construction loans during boom years, High Desert Federal Credit Union is now reeling from the weak real estate market.

The credit union is coping with 20 percent of loans at least two months delinquent and income losses totaling nearly $4.7 million for the first six months of this year, records show.

While the figures are sobering, credit union officials and independent credit union analysts say the institution remains solvent and safe and that deposits are federally insured by at least $100,000. Individual retirement accounts are insured up to $250,000.

“The real estate market has really had an adverse effect on banks and credit unions alike, and obviously High Desert was not immune to that,”said Ralph Ramirez, a spokesman for the Apple Valley-based credit union. “We’re taking each loan, each member, case by case, because each member has a different story to tell, and we want to do everything that we possibly can to meet their needs to help them recover.”

The rate of accounts delinquent by at least two months reported by the credit union has more than doubled since March, from 8.7 percent to 20.45 percent, which leaves the institution with $24.7 million in delinquent loans, according to NCUA records. Meanwhile, the amount in foreclosed and re-possessed properties has jumped from $340,155 in June 2007 to over $4 million in June 2008, the records show.

The credit union has taken several actions to improve the situation. In addition to cutting expenses across the board by 12 to 15 percent over the past seven months, High Desert Federal Credit Union downsized its full time workforce from 82 in December 2007 to 65.5. The company has also set aside $3.6 million for loan losses, up from the $600,000 set aside in February. About $2.8 million of the loan loss provisions are due to home construction loans, where members who built custom homes became overextended or could no longer afford to make payments, Ramirez said

The current capital ratio for High Desert Federal Credit Union is at 9.01 percent, slightly up from its June 2008 report of 8.85 percent. But it is still below the 10.62 percent first quarter average for California credit institutions, according to Terrin Griffiths, economist for the California Credit Union League.


Let's look at the facts:

1.  Delinquent loans have more than doubled from Q1 to Q2.

2.  Foreclosed homes are up over 10X y/y.

3.  It has only taken reserves of $3.6 million against about $25 million in delinquencies.

CU officials and "indepdendent" CU analysts say "solvent and safe???"

Capital ratio is only about 9% with $3.6 million of reserves.  We know that RE debt in CA is selling for $0.20 on the dollar.  Can you imagine what the capital ratio would be if the debt was marked to market?????

How many other financial institutions are making similar kinds of reserves.  No wonder less than 100 banks are on the FDIC troubled list.....can you imagine how many troubled financial institutions there are if assets and reserves were marked to market?

Remember, conditions have deteriorated rapidly since Q2!!!!!!!!!!

Wall Street knows this, Uncle Ben knows this, the Treasury Secretary knows this......and now you know it.  At this point, nothing should surprise you....NOTHING!!!!!!!!!

8 Comments – Post Your Own

#1) On August 12, 2008 at 7:09 PM, nuf2bdangrus (< 20) wrote:

Don't worry.  Uncle Ben is going to print lots of pieces of paper to bail everybody out.  In the short run, they will kill the gold specs so the institutional longs can cover their shorts, the retail late longs always getting the shaft.  Then when the money presses run, and they will, because the Fed would prefer inflation to deflation, gold will rise again.  I was early in gold and goldstocks, but I am holding.  My calls have 6 months to go.  I think the fan will be coered with #$%@$@ by then.

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#2) On August 12, 2008 at 7:14 PM, alstry (< 20) wrote:

AS I said above, NOTHING SHOULD SURPRISE YOU.....NOTHING!!!!!!!!!!!!!!! 

Wachovia's commercial loans stir worries

Bank may have cut corners In bid to join industry giants, analyst says

SAN FRANCISCO (MarketWatch) -- In September 2006, Wachovia arranged a $285 million loan for Latrobe, Penn.-based drinks maker Le-Nature's Inc.

The bank then sold the debt on to investors including Philip Falcone's $20 billion Harbinger Capital hedge-fund firm and the Missouri State Employees' Retirement System.

Roughly 60 days after the loan, Le-Nature's was bankrupt. The company was later found to have fraudulently inflated revenue by about 10 times, according to federal prosecutors.

Harbinger, Missouri and other investors sued Wachovia claiming the bank knew about Le-Nature's problems, but went ahead with the financing anyway.

The fee of more than $7 million was alluring and the deal helped Wachovia in its goal of becoming a major player in the junk-bond market, the suit alleges.

You think Wachovia is the only one????  What about liar loans??  CRE loans for over 100% of appraised value???  Private equity loans that any two year old would know didn't make sense?

The loans were in the trillions.  The fees were incredible.  The bonuses were outrageous.  Now America is soooo leveraged few can pay back and many are defaulting. 


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#3) On August 12, 2008 at 7:29 PM, alstry (< 20) wrote:


If The Fed is going to print like you say they are......why is credit tightening up everywhere????

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#4) On August 12, 2008 at 8:29 PM, DemonDoug (30.97) wrote:

because credit default swaps are different than US treasuries.  US treasuries make their way into the P/C economy, blah blah blah I don't even know why I try to explain this to you al, it's beyond so obvious at this point it's ridiculous, the point is bad credit is being replaced by real money which is printed by the government, stick your head in the sand and not believe me if you want, in a debt deflation paper assets (ie debt instruments) go down while the printed money ends up going to real assets - metals, oil, ag, blah blah blah fine don't believe me then, even though it happened in the 70's, it's happened dozens of time throughout history, it happened in 2001, it's happening now, blah blah blah.  You wanna miss the hard assets boom as the dollar slides into oblivion be my guest al.  I would think a doomer like yourself would be stocking up on water, ammo, and gold and silver though.

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#5) On August 12, 2008 at 8:52 PM, dexion10 (27.07) wrote:

alstry and demon dug are like the odd couple... very funny.

I appreciate this data point alstry. 

But also keep in mind what doug says. This will not be the end of the world or the financial system. The banks and gov't are creative folks... they can pretend the issue away.

That said I do believe that focusing one entities with bad land  - which is much more illiquid than mortgages and too much leverage is the safest way to short "the man".  Also shorting investment banks like MS and GS is a pretty good gig right now too. 

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#6) On August 12, 2008 at 10:32 PM, alstry (< 20) wrote:

Demon and Dex,

Yes.....however, the Fed is replacing only a small part of bad debt with treasuries.  Just those institutions with access to the window.

However, most of the debt will be left out to dry and evaporate in the defaulting sun.  Pension funds and mutual funds don't have access to the window.  Niether do regional banks, local banks or most insurance companies.

Sorta like replacing a quart of lost blood with a the end, the blood runs dry.

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#7) On August 12, 2008 at 11:08 PM, DemonDoug (30.97) wrote:

Yes.....however, the Fed is replacing only a small part of bad debt with treasuries.  Just those institutions with access to the window.

Yes, and there are 2300 or so member banks that own the fed.  The fed could easily open the window to all it's member banks.  BTW member banks borrow from the regional fed banks.

However, most of the debt will be left out to dry and evaporate in the defaulting sun. 

BSC 29 billion.  This is like replacing a quart of diseased cancerous blood that should have been left to whither and die with 8 quarts of the good stuff.  Ag bill.  Bank/Builder/RE bailout bill.  Both 300B.  In real dollars, not CDS's, not MBS's.  The fed at the discount window itself has replaced upwards of 500B of MBS at face value with US treasuries and cash equivalents.  This is replacing 1 quart of blood lost with 1.3 quarts.  Not only is it not drying, it's flooding.

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#8) On August 13, 2008 at 4:21 AM, alstry (< 20) wrote:


Re the Ag Bill I have not put much thought into how it applies.  Re the non bailout housing bill, few will qualify for the requirements thus I highly doubt anything close to $300B will ever be spent.

Re the $500B, I believe it includes all repos and not just MBS.  Remember, in this example, 20% of loans were in default so far.....extending that out we are looking at $8 Trillion or so.  We know subprime RMBS are down over 90%.  ALT A and Prime is just starting.  So is CRE.  How much of Level 3 assets do you think is distressed now and likely in the future?

In the end, it really doesn't matter between us.  With inflation many will not be able to buy a loaf of bread.....same with deflation.

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