I was surprised when it was reported that credit unions we’re being found to have “strayed” into some of those hyper-risk ventures that have already taken down a bunch of banks, with more likely to crash and burn before it’s all over.
I say “strayed” because credit unions have been financial institutions with a long history of operating conservatively. You know, as in making loans to members under a solid business model that requires the applicant to have more than just a pulse to get a loan! So, I suggested in this blog several months ago, and many of you agreed, that credit unions could be a good source of funds, particularly for consumer financing.
Then news broke in late April. Regulators had moved in on the 70-year-old, $1.6 billion Eastern Financial Florida Credit Union, originally formed so employees of Miami-based Eastern Air Lines (ceased flying in ‘91) could get good rates of interest on their savings and the same for their auto and boat loans. That was the credit union model. However, somewhere along the way, Eastern apparently ignored its roots and started acting more like a bank. It’s now reportedly knee-deep in bad real estate deals from offering interest-only mortgages as well as investing in collateralized debt obligations, the latter a major factor in the housing collapse.
Interestingly, bankers are probably smirking at Eastern’s troubles. After all, banks have vigorously opposed attempts by credit unions to gain authority to be more like banks. (Now you know a big reason why I recently applauded the unselfish job the National Marine Bankers Association is doing to educating banks AND the nation’s credit unions about marine lending opportunities.)
Further checking, however, indicates that within the credit union industry, the Eastern takeover is an unusual situation, not indicative of the industry’s overall good health. Credit unions haven’t been in the news stories like banks over such things as TARP funds, though there combined income last year reportedly dropped 47 percent. Fortunately, most credit unions have not been gamblers at the disastrous mortgage-backed securities table. For those like Eastern that have, losses are covered by the National Credit Union Share Insurance Fund.
Accordingly, there are 11,000 credit unions in the nation, most reported to be financially solid. So, contrary to anything negative you may have recently heard or read about credit unions’ health, I think they remain a possible good source of boat financing. While not likely to be convinced to start a marine floorplan portfolio, it is a fact that credit unions were actually first created to make business loans to farmers. So, business lending is certainly within the scope of credit unions. In addition, some credit unions have even had agreements with auto dealers, for example, to fund indirect auto loans, too.