Credit unions.

• Position: Industry Outlook

The economy has everyone from Wall Street to Main Street on edge these days and Utah's credit unions are no different. But credit union leaders say their community-focused structure has proven successful for their members during these hard times. Our industry experts discussed residential and commercial lending, including mortgage fraud. They also discussed the pros and cons of government regulation, advances in technology and economic forecasts for 2010.

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We'd like to give a special thank you to Scott Simpson, president of the Utah League of Credit Unions, for moderating the discussion, and to Holland & Hart for hosting the event.

The economy has impacted nearly every industry, especially financial institutions. Discuss how the economy has affected credit unions differently than other financial institutions.

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HOFELING: I like to use the car crash analogy when discussing the economy. We had enough information coming, since Utah lags behind national trends, that we could see what was going to come and we knew it was coming. And then when it hit, Utahns started panicking, saying, "What just happened?" It was almost as if Utahns thought that the state wasn't going to have the recession happen here. I think we kind of got shocked after the fact.

MOORE: I think many Utahns were lulled into sleep a little bit. The economy had been so good for so long that people said, "I want to start taking advantage of the appreciated value in the real estate market." So people were starting to stretch themselves possibly a little bit beyond what would have been prudent in normal terms. And then we hit this crash and everything came tumbling down. All of a sudden, people were finding themselves overextended--in a position that they really couldn't deal with. Hard decisions had to be made and some people had to say, "I maybe just need to walk away from this."

HOFELING: I agree. I think most of us in the financial world, including our associates in the banking world, knew the [recession] was coming to Utah. It was just this prolonged wait--but we knew it was going to hit us.

MOORE: The economy was positive for so long, everyone felt like they could make it one more cycle to one more cycle. They thought, "I can turn one more house and I can make some more money." And then the economy caught up with everyone.

LUND: I was surprised at how fast [the recession] hit. It's almost like things were fine, and then all of a sudden it was just bad. People were losing jobs and delinquency rates were going up. When it finally hit us, it hit us very quickly and hard.

ANDERSON: As far as the unemployment side of things--we have so many customers who were employed by the housing sector and they were hit hard. Even though those people didn't necessarily become unemployed, they become under-employed because all of a sudden they were making a third of what they used to make. And that caused a need for them to default on their loans.

HOFELING: The thing that really surprised me is how many people were running for cover, blaming their troubles on somebody else. We heard, "It's not my fault. It's not my fault. They told me this. They told me it was going to be good. Yes, I fudged on the application, but that's because they told me to." It was always somebody else's fault. That was disappointing to hear. I expected people to stand up and say, "I was wrong." But I heard very little of that and a whole lot of, "somebody else told me to." That disappointed me more than anything else that happened.

How many of you experienced mortgage fraud activity?

KUEHNE: More than straw borrowers or outright fraud, we saw people who built their dream home, hoping that they would sell their home. Now, they're stuck with both homes.

MOORE: There were people always betting on the economy, hoping that the economy was going to be good. They thought, "I'm going to get that big raise, the house is going to appreciate in value, I'm going to build this house and sell it and make lots of money." Then the economy just tanked out. People need to realize that usually the odds are not in your favor. You have to measure and monitor risk. Those who didn't manage risk as closely as others have probably taken bigger hits. We are in the risk business, but we have to manage the risk.

I also think our neighboring states had an impact on Utah. The migration from California, Arizona and even Nevada into Southern Utah definitely hurt us.

KIRBY: I agree, especially in the St. George area, where it's crept up from Nevada. We've seen the impact in the St. George area because St. George is more closely tied to what's going on in Las Vegas than in Northern Utah. So, we've certainly seen the housing impact in that area. Obviously, though, the impact has been scattered throughout the state.

What do you predict happening in 2010? Do you think Utah's economy will continue trending downward or are we headed out of the recession?

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KUEHNE: Normal, everyday folks are going to really start being affected. We've observed that some of our members are choosing to not pay their mortgage and are still keeping other things current. In the past, I think most of us assumed that they would pay for their home loan and let their car go or let their credit card go. But they're hanging onto those things and letting the house go. I don't know if all these programs have an impact there--that people are starting to think they're going to get something handed to them eventually. Otherwise, it's a little nonsensical to let your house go. But we're seeing it.

LUND: I read that there is a tidal wave of foreclosures that will hit after the first of the year--that many mortgage companies and financial institutions have been holding off, hoping that something will turn. But it just doesn't look like it's going to happen. During the first part of next year, I think there will be even more foreclosures. I don't think we're at the bottom. There are some positive signs that some things are turning, but as far as the overall economy, I don't think it's going to be coming back very quickly.

ANDERSON: You also have the issue of not only those that have held off foreclosures, but you have a lot more ARMs that are scheduled to reset during the first of the year. Part of the problem is that a lot of people who would love to refinance can't because they are upside down in their homes. They're not able to refinance. We're going to see a lot more of those people go into foreclosure as well.

HOFELING: I think we were all a little naive to be surprised there were and are so many people who are willing to walk away from their homes. If you're upside down in a house, and it's your first house, and you've been raised in an economy where everybody is...