delinquent loans/net worth ratio of 7.76%

against a peer average of 3.43%. Its total assets are $3.8 billion.)

"Regardless of how the remaining portfolio performs we face a minimal risk," she added, "but it is not performing as well as we had hoped. The yield was adequate but not good." CompuCredit still services the portfolio and Wood said that the CU has regular talks with them about ongoing collection efforts, but no longer has any ownership interest or other participation in operations. Wescom no longer makes loans through CompuCredit.

Wescom and Patelco came to the subprime market when ACC principal Rocco Fabiano and Randy Moore, a well-known credit union attorney broached the idea back in late 2003. "There was a conversation with several credit unions about creating subprime loans for a target audience outside the normal parameters, and as a credit union, we thought it was an opportunity for borrowers in that category. We thought we could give them better service and rates and they would benefit as consumers from what credit unions could provide. Later on, we expressed an interest in ownership," said Wood.

Wescom has experienced a greater delinquency and charge-off rate than they expected, Wood allowed, but she said the CU had "a cushion due to the rate that mitigates" the losses. Wescom charged off $5.5 million in the first quarter and nearly $11 million year-to-date, but that number includes ACC loans and Point of Sale loans made through CUDL. Still, it charged off $15.5 million for all of 2006, so at mid-year the trend seems clear.

"On a percentage basis our subprime and indirect auto together account for

a disproportionate amount of our total charge-offs," admitted Wood. So why not sell the portfolio, like Patelco did? "It's a matter of priorities," Wood explained. Given that the size is relatively small, "we can hold and mitigate and hope to improve the performance with collection efforts. If we sell we'd have to do so at a discount which would entail a substantial loss."

Wescom did thorough due-diligence before investing in ACC she said, and analyzed the available data on subprime performance. "It appeared to us to be a viable business. There are a lot of factors that go into it, but it was Rocco Fabiano's prior experience and successful track record that gave us a comfort level." Wood noted that Centrix was also heavily involved in the CU space at that time, but said Wescom preferred the ACC business model to theirs.

Wood said that Wescom learned a great deal from the experience and said that there is still a consumer market that needs access to credit without paying usurious rates. Wescom tried to create a middle ground by blending the CU approach and overlaying it onto the subprime genre, she said. "There are factors in servicing that we were more restrictive than others; that might be a reason that some provisions were created by Wescom, Patelco and ACC [that affected the outcome]. The NCUA Risk Alert imposed

specific servicing parameters that possibly affected the yield as well," she said.

No armchair quarterback, Wood said that this kind of lending comports easily with CU philosophy, but Wescom had "learned that it's hard to do good, to extend outreach. But we thought that we didn't have the expertise to develop and manage a program like this in house. If we had, we probably would have had better results."

–[email protected]