By LINDA McGURK
Indiana Correspondent

DANVILLE, Ind. — It seems not a day goes by without financial institutions on Wall Street making headlines – and good news is in short supply. Outrage over the bailouts of some of the nation’s largest corporations and the greed on Wall Street is brewing among regular Americans.

But not all financial institutions are caught up in the sub-prime mortgage mess and the ensuing credit freeze. For credit unions, times are pretty much business as usual. “Credit unions are lending while other lenders are pulling back. We’re increasing lending across the board,” said Katye Long, spokesperson for the Credit Union National Assoc. (CUNA), a trade association representing 90 percent of the 8,400 credit unions in the United States.

In the fiscal year ending June 2008, small business loans and first mortgages in credit unions were up by 15 percent, according to CUNA’s figures.

“Credit unions are doing pretty well in the current market because they were never involved in predatory lending,” Long said. She added that favorable publicity has boosted the public’s interest in credit unions. “We’ve actually seen a lot of people with toxic loans come to credit unions for help.”

As opposed to banks, which are owned by outside shareholders, credit unions are nonprofit financial institutions owned and operated entirely by their members as a cooperative. Members pool their assets to make loans and provide other financial services to each other at discounted rates.

“The credit union idea is the polar opposite to what we’re seeing in markets today,” said Kevin Turnbow, president of Pinnacle Credit Union, during a panel discussion at the Oct. 9 Indiana Cooperative Summit. “We are very conservative with our members’ money and we give back to our members. We know that if they prosper, we prosper.”

Credit unions are not allowed to invest in mortgage-backed securities and collateralized debt obligations, the complex and risky financial instruments that have gotten so many big banks in trouble. “There’s never been a taxpayer dollar spent on bailing out a credit union,” said Matt Snively, senior vice president of sales at Eli Lilly Federal Credit Union. “We’re not able to go out and invest in the same things as banks. We’re subject to caps, too.

“We’re only allowed to make 12.25 percent of our total assets in business loans. The amount of exposure commercial banks have is substantially higher.”

The credit unions’ conservative lending philosophy means they have fewer members defaulting on loans. According to CUNA, the default rate for first mortgages at the end of the first quarter of 2008 was a negligible 0.06 percent. The default rate for all loans was 1 percent.

Andy Gangwer, executive vice president of Goshen, Ind.-based Interra Credit Union, is critical of the out-of-control lending practices of some of the big players on Wall Street. “They were making loans to people who didn’t even have jobs,” he said. “Part of the mess we’re seeing right now is due to (banks) forgetting the underwriting process. Underwriting is key.”

When asked if the 44,000-member Interra Credit Union is still making loans, Gangwer’s answer was quick and resolute.
“Absolutely,” he said. “We don’t know what the credit freeze is.”
About 10 percent of Interra’s members are involved in agriculture and Gangwer said the credit union provides real estate mortgages as well as intermediate and short-term loans for purchases of machinery and livestock. Currently, only a fraction of deposits in the U.S. are held in credit unions, but with the meltdown of some of the country’s largest banks and distrust of big corporations, more people may turn to cooperative credit unions or other local alternatives.

“I can tell you that when the banks are having a lot of problems, I’m glad I belong to a credit union,” said Maria Marshall, an extension specialist with Purdue University. “I think that whenever people struggle economically, they tend to pool their resources together.”

Jack Sheets, president of Interra, agreed. “There’s definitely a trust issue with some of the mega banks. The timing couldn’t be better than right now to introduce the cooperative model to Indiana,” he said. “(People) know that we’re local and they know that we’re owned by our members, and they feel really good about that.”