Valley Federal Sells 60% of Its Mobile-Home Loans

Valley Federal Savings & Loan in Van Nuys said it made another step toward extricating itself from the mobile-home loan business, which was the primary reason for the company’s loss of $138 million in 1989.

In October, Valley Federal sold $68-million worth of mobile-home loans--about 60% of the mobile-home loans that it owned--to outside investors, according to a filing with the federal Office of Thrift Supervision that was released last week.

That was an important step because about a year ago, federal regulators ordered Valley Federal out of the mobile-home loan business. Because of Valley Federal’s huge losses in 1989, the thrift’s capital, or the cash cushion it needs to maintain to protect it from losses, fell far below federal standards. As of Sept. 30, the thrift had a deficit of $22.3 million in tangible capital, a measure equal to a thrift’s net worth, minus the value of some non-cash assets.

As a result, Valley Federal has been operating since May under terms of an agreement with the federal government to achieve certain profit levels and bolster its capital. So far, Valley Federal has met the terms of the deal.

Valley Federal took other steps to eliminate some of the risk of losses from other mobile-home loans that it sold to investors prior to this year. To get the investors to buy the loans, Valley Federal had to guarantee that if the loans went bad, it would absorb some of the losses.

But Valley Federal also said in the filing that during the first nine months of the year, it renegotiated with investors who had bought $82-million worth of those loans. Under the new deals, the S&L; will not have to absorb those losses. In addition, the portfolio of loans Valley Federal had sold to investors was reduced by another $73 million because borrowers made principal payments on the loans.