David versus Goliath

A look at mortgages and modifications of Bank of America and the credit union system during the Great Recession.


Every organization wants to leave a legacy. Sometimes those legacies are positive; sometimes they are not what was intended; too often they go unnoted. Because of financial reform, legislators and the public are examining what kind of role key participants played in the 2008-2009 financial crisis. So what do 2009’s numbers suggest about the role of the co-operative model  — credit unions — and the role of the
for-profit model — represented here by Bank of America — in providing financial services during a crisis?

Mortgages and Modifications
BofA’s first mortgage portfolio declined $6 billion to total $242 billion in 2009. With a 35% increase over 2008, credit unions originated a record $95.0 billion in 2009. They increased the first-deed loans held on their balance sheet by 3.6% — to $220.7 billion — and reached a new peak — $51 billion — in sales to the secondary market. 

Last year, national economic policy focused on restoring the flow of credit and restructuring debt for those facing economic hardships. BofA modified $5.3 billion in first mortgages, of which 55% were non-performing. The bank also modified $2.3 billion in home equity outstandings, of which 74% were non-performing.

As with first mortgages, credit unions set a record for loan modifications. Modified first mortgages totaled $5.2 billion at year-end, of which $4.7 billion was completed in 2009. Second trust deed modifications totaled $909 million, with $806 million completed in 2009. Credit unions also modified $1.2 billion of small business loans. Credit unions’ reportable delinquency for modified firsts reached only 21%; charge-offs from this portfolio barely climbed above 1% (1.2%).

What Do these Numbers Mean?
In credit cards, small business lending, mortgages, HELOCs, and consumer loans, credit unions grew their portfolios. In several categories that both credit unions and BofA offer loans, the credit union system out loaned the nation’s largest bank. In the same period, credit unions modified approximately the same amount of consumer loans as the entire BofA complex. 

Both credit unions and BofA played critical roles during this past financial crisis. Credit unions kept consumer credit and confidence flowing at a local level; BofA helped stabilize the country’s financial system. Our recovery would be very different if only one approach had been available. Government assistance to the banking system was important in restoring confidence and normal financial market functioning. Credit unions did not need this assistance — as both CLF and NCUSIF have unused resources — but more importantly, using federal tax dollars would have put tax-exempt credit unions in an awkward policy stance of defending the exemption yet accepting assistance.

Despite the outcome of financial reform, credit unions must ensure our contribution to the recovery is understood and documented. Congress, the public, and the banking system need to recognize the importance of supporting members’ financial well being through good times as well as bad.

For a more complete discussion of the lending portfolios and performances of Bank of America and the credit union system, pick up a 1Q 2010 copy of CUSP.