The 40-year-old Mission SF Federal Credit Union will be merged with a larger institution by April 30 if its balance sheet fails to improve, according to officials.
To avoid this, the directors are trying to raise $250,000.
“We’ve been fighting for our lives,” said Roberto Hernandez, a former chair of the credit union who returned recently as a director. If forced to merge, they would prefer to avoid merging with a large North Carolina institution chosen by the National Credit Union Administration, he said.
It’s unclear if Mission SF will be able to raise the money it needs to remain independent. So far, directors said, they have raised $50,000, largely from other credit unions sympathetic to their situation.
Cherie Umbel, in the office of public and congressional affairs for the National Credit Union Administration, wrote in an e-mail response to a question on Mission SF’s options, “The resolution process has not been finalized.”
Asked if it was likely that Mission SF would raise the money to avoid a merger, she wrote, “Credit unions have accomplished this before.”
There are 7,402 federally insured credit unions, but only 1,109 are classified as low-income, and only 326 of these have memberships similar to Mission SF in size, ties to a geographic area and limited incomes.
“We’re a community development credit union,” said Margaret Libby, a board member and executive director of Mission SF’s Financial Center.
This means that Mission SF makes low-income residents a priority. The credit union has been a leader in offering banking alternatives to low-income residents, who pay steep fees to use the many check-cashing outlets in the Mission District.
Mission SF has also been involved in initiatives such as teaching financial literacy, and with Bernal Bucks, a local currency for merchants and residents in Bernal Heights. The credit union, according to the Bernal Bucks website, would issue a debit card for the currency.
Hernandez and others said they feared these initiatives would end if the credit union merges with an out-of-state institution. The directors would prefer to remain independent. If that becomes impossible, they want to merge with a local institution like the Cooperative Center Federal Credit Union in Berkeley.
Mission SF, which had assets of $6.1 million at the end of last year, got caught in the 2008 mortgage crisis. But unlike larger institutions, it has had no federal help.
Its small size means that it took just three bad loans and some troubled assets to put the credit union in peril, according to the treasurer.
One mortgage for more than $400,000 had to be foreclosed, and the house is now owned and being rented out by the credit union. The other two loans were second mortgages.
Talking about the seconds, Dave De Graff, the board’s treasurer, said, “The guy foreclosed and the bank that had the first [got the house] and we got nothing. Basically, those loans sucked up our reserves.”
Although second mortgages are considered riskier, regulators said in an e-mail that 40 percent of Mission SF’s peers also offered second mortgages. Larger banks also avoid risks by selling their loans to Freddie Mac and Fannie Mae, but regulators wrote in response to written questions that “most small credit unions lack the economies of scale that make participation feasible.”
Federal regulators consider 7 percent a sufficiently capitalized credit union. When a credit union falls below 6 percent, the National Credit Union Administration requires a Net Worth Restoration Plan to outline how the credit union will restore its capital to 7 percent or above.
Libby noted that many credit unions are operating under such target plans. Mission SF has been operating under one since May, 2010, she wrote in an e-mail. The credit union achieved the quarterly targets in June and September, 2010, Libby wrote. Then, another another real estate loan went bad in late 2010 and the credit union fell below 2 percent, which triggers the 90-day clock.
In that time, ” the NCUA can merge, conserve, liquidate or take other regulatory action” against the credit union, Libby said. Based on an appeal submitted by Mission SF’s board regulators voted to take other action, giving the credit union 90 additional days or until April 30. The earlier deadline had been January 31.
The directors pointed out that the federal TARP program stepped in to help failing banks, but has done nothing to assist the smaller credit unions that traditionally serve lower-income clients. Recently, they said, regulators had made it even more difficult for the credit union to overcome its current problems.
“Right now that’s what change is — we’re under a much tighter regulatory structure,” said De Graff. “In the past we were given more time.”
Mission SF’s total outstanding loans grew substantially over the last 10 years, while its membership numbers have fallen. In 2000 it had 2,782 members and outstanding loans of $3.8 million. By June of 2010 outstanding loans had risen to $5.7 million, but they peaked in September 2008 at $7.9. Membership had declined to 2,426 as of September 2010.
Although 10 percent of Mission SF’s second mortgages and 10 percent of its first mortgages could be considered troubled, De Graff said the bank’s portfolio of 129 car loans was doing well.
It’s unclear what will happen over the next few weeks. There were three assisted credit union mergers in 2008, 10 in 2009 and 10 in 2010, according to federal regulators.
Regulators have created an office of minority and women affairs to help distressed credit unions, but Umbel from the National Credit Union Administration said that the new office was not involved in the resolution process for Mission SF.