Consumer Credit Collector News - Return to Menu

Construction loans power credit union's success
By JAMES RAMAGE/Staff Writer

VICTORVILLE - April 12, 2005 - The High Desert's housing boom has greatly benefited a local credit union's business strategy and overall success.

High Desert Federal Credit Union's construction lending services have given it the second-highest return on average assets in the country for its class, according to Tom Brown, its president and chief executive officer.

Those services also helped the credit union to expand in San Bernardino County and to contract its lending services to other credit unions' members throughout the western United States, Brown said.

"It's our hedgehog; it's what we do best," he said, referring to construction loans to potential homeowners. "We do everything else most credit unions do, but it's our bread and butter."

Brown's "hedgehog" has helped the credit union garner $138 million in total assets, he said. It's also propelled the institution to the eighth-highest return on average assets for all credit unions nationwide in 2004, with more than $50 million in assets -- a standard measurement for credit unions -- according to a credit union information and consulting firm, Callahan's 2005 Financial Yearbook.

That construction loans represent 54 percent of the credit union's overall gross revenue is rare in the industry, according to Mark Lowe, public relations specialist for the California Credit Union League, a trade association.

"I haven't heard of credit unions billing construction lending as one of its primary revenue sources," Lowe said. "Usually it's auto loans or first mortgages that play that role."

The credit union is also looking to expand throughout the county from its three Victor Valley branches, but could not yet say where, or how many more offices would be added, Brown said.

"We've altered our charter, with the approval of the credit union regulator, to include all of the county's almost 2 million residents," Brown said.

The credit union is also taking the unusual step of offering construction loans to potential homeowners through other credit unions that don't otherwise offer the service, Brown said. They currently have six clients, he added.

Credit union managers and industry observers would be interested in this process of clients getting their home construction financed by a credit union other than their own, Lowe said.

James Ramage may be reached at 951-6242 or james_ramage@link.freedom.com.

New law tightens Chapter 11 rules

Some experts expect small businesses to fail at higher rate

BY JENNIFER BJORHUS
Pioneer Press

May. 17, 2005 - Consumers aren't the only ones being hit with changes in the country's bankruptcy law. When the new credit industry-driven law goes into effect Oct. 17, small businesses filing bankruptcy will find their own changes waiting.

While the controversial new law doesn't clamp down on business bankruptcies the way it does on consumer ones, it significantly tightens the process, say some experts, and may lead to more Chapter 7 liquidations.

In a detailed, 39-page section, the new law defines small-business debtors as those with $2 million or less of already-determined debt on the date they petition for bankruptcy and specifies numerous changes to the Chapter 11 process in which companies reorganize and emerge from bankruptcy. Companies filing after Oct. 17 will need financial advisers who are more nimble and organized before they file, and who have a much clearer sense of the viability of the business, said George Singer, a corporate bankruptcy attorney at law firm Lindquist & Vennum in Minneapolis.

More important, Singer said, the new law will result in more companies converting from a Chapter 11 to a Chapter 7 liquidation more quickly.

"You're going to see small businesses fail at a higher rate because it is tougher to succeed in a Chapter 11 than before," said Clint Cutler, head of the bankruptcy practice at corporate law firm Fredrikson & Byron in Minneapolis.

Not everyone agrees on that point.

"Any small case not done in almost a year and a half is doomed anyway," said Bill Kampf, a corporate bankruptcy attorney at law firm Henson & Efron in Minneapolis. Kampf said he doesn't think the new bankruptcy law means much for small-business debtors.

Singer, a former staff attorney with the National Bankruptcy Review Commission, is working on a white paper for clients about the law's small business changes. Here are some highlights of the changes in Singer's view:

• Faster plans — Current bankruptcy law doesn't specify deadlines for filing a plan of reorganization. Under the new law, small businesses have a hard deadline: They must file a plan of reorganization within 300 days of filing their initial petition. However, the filers' exclusivity period, during which they have the sole right to file a plan to reorganize, is being extended from 120 days to 180.

• More Chapter 7 — The new law expands the grounds on which the court can convert a case from Chapter 11 to Chapter 7. The new law requires a case to be converted under certain circumstances, such as failing to pay taxes, instead of leaving it up to a judge's discretion.

• More U.S. Trustee oversight — The law says the U.S. Trustee, a court-appointed watchdog, must conduct initial interviews when small businesses file and gives the trustee the authority to inspect the business premises and books.

• Tougher reporting requirements — Under the existing law, companies were not required to attach all new financial documents to their petitions and other filings. Now they must attach balance sheets, income statements and cash-flow statements, as well as tax returns, to their bankruptcy petitions. It also requires small businesses to file periodic financial reports including such information as profitability and projected cash receipts. The new law is also tougher on filing taxes. While the current law does require companies to file taxes, companies frequently sought extensions. The new law clamps down, saying businesses must attach their most recent tax filing to their petition and must file taxes on time. Failure could mean dismissal or conversion to Chapter 7 liquidation.

On the flip side, the law simplifies the process for getting a plan of reorganization approved by creditors by replacing the hefty prospectus that debtors currently mail to creditors for voting with simpler forms.

The U.S. Small Business Administration is charged with studying the law's impact. By the spring of 2007 it's supposed to give Congress a report on what's driving small business bankruptcy and how to adjust federal law to help them.

The National Federation of Independent Business, which stayed out of the fight over the law in Congress, hasn't taken a stand on the law.

"We didn't hear much from our members on this issue at all," said Brad Close, NFIB's manager of legislative affairs.