NuVision fared better, bringing in a 2011 profit of $2.6 million.

“It is certainly disappointing what happened to Kinecta in 2011 based on significant problems in the wholesale and resale mortgage market but we have already made major strides toward recovery,” insisted Roger Ballard, who wears two hats as president/CEO of both CUs.

As head of NuVision, he took on Kinecta, one of the credit unions hit hardest by the California housing bust and which underwent a long period of management turmoil.

Both CUs share aerospace legacies, serving a large SEG employee base in both Los Angeles and Orange counties, and hold a combined membership of 300,000.

In an interview Ballard said Kinecta in 2011 misguessed the impact of the refi market and projected higher loan volumes than it brought in.

But a major factor in last year's losses, Ballard said, was in regulation of wholesale mortgages and “significant slowing by new federally mandated loan officer compensation rules.”

The imposition of those rules, he said, “was compounded by a much slower than anticipated purchase market due to the prolonged weakness in the real estate markets. High inventory of REOs also caused home values to decline, negatively impacting revenue from our mortgage operation.”

Credit union consultant Tom Glatt Jr. observed that because Kinecta retains a large percentage of its portfolio – 63% – in real estate, and because the “NCUA has been so concerned about concentration risk recently – it stands to reason that Kinecta might have decided to let certain loans leave in favor of driving portfolio growth in other areas.”

Ballard, meanwhile, in looking at economic conditions, particularly in southern California, noted that “historically low interest rates created an unprecedented level of loan prepayments due to heavy refinance activity in the latter half of 2011 which has led to a lower market value for mortgage servicing rights.”

Many of the same factors, he said, “impacted the entire mortgage banking industry and key players incurred severe impairments on the MSR assets during 2011.”

Ballard added that “along with many other mortgage industry participants, we established a nearly $10 million impairment reserve against our MSR asset as a result. Our MSR impairment charges can be recaptured in subsequent periods as interest rise and the asset value recovers.”

Ballard said the internal decision to delay implementation of the NuVision merger was made late last year with a formal announcement issued last week as 2011 results were released.

He said boards of both CUs felt it prudent to put off the final merger filing, meaning a member vote may not take place until “the latter half of 2013.”

The planned merger was initially announced in June 2010 and paralleled another high-profile merger of California's Addison Avenue FCU and First Tech CU of Portland, Ore., to form the $5.1 billion First Tech FCU with headquarters in Palo Alto, Calif. That merger was completed last year.

Regarding its balance sheet, Ballard said Kinecta “has a strong strategy in place moving forward and our residential mortgage business will continue to be a strong business driver for us. Our purchase production increased over 60% in 2011 in a very difficult market and we expect this growth to continue.”

He said Kinecta “hopes to generate a higher mix of retail mortgage origination in 2012, which offers higher margins,” In addition, “we do not anticipate any regulatory changes in 2012 and with MSR valuations at very conservative levels, we do not anticipate additional impairments.”