Pension Fund Ends Mortgage Program

The California Public Employees Retirement System is no longer offering mortgage loans to members.
By Laurie Kulikowski ,

SACRAMENTO (

TheStreet

) -- The

California Public Employees Retirement System

, or CalPERS, is no longer offering mortgage loans to members.

The public pension fund said late Monday in a statement that due to "limited member usage" as well as increasing costs, its board of directors approved a suspension of its mortgage loan program.

CalPERS is no longer accepting new mortgage application, however loans currently in the pipeline are expected to be completed over the next three months, it says. Members with existing CalPERS loans are not affected, according to a statement.

Citigroup's

(C) - Get Report

CitiMortgage oversees the program, however multiple lenders have been used for the mortgage originations, a spokesman told

TheStreet

on Tuesday.

"Over the past few years, there has been limited interest among our members in the Member Home Loan Program," said George Diehr, Chair of the CalPERS Investment Committee. "This change allows us to redirect our resources and reduce the risk to the Fund."

CalPERS is the largest public employee pension fund in the United States with assets of approximately $218 billion.

CalPERS' Member Home Loan Program (MHLP) was launched in 1981 offering members mostly 15- and 30-year fixed rate mortgages. Since then members have taken out more than 136,000 loans worth more than $22.7 billion.

However, since 2004, the program has been averaging only between 1,000 and 4,500 loans a year, just a small percentage of CalPERS 1.6 million members and retirees, the fund says. In addition, the amount of staff time required to operate the complex loan program has risen considerably.

"This wasn't a core part of what CalPERS does," the spokesman said. "Over the years the usage has decreased and we have limited staff and this gives us a chance to refocus."

The spokesman did not have year-to-date origination volume through the program readily avaiable.

Even with the conservative lending guidelines, the program was hit by the housing crisis. In its Secure Personal Loan Program, in which members are allowed to borrow some $18,000 against their retirement contributions for a down payment, there has been increasing delinquencies and defaults, CalPERS says.

California has been one of the hardest hit states as a result of the housing crisis and resulting recession, forcing many banks that extended credit during the frothiest years in this area to retrench as a result of high losses. According to the U.S. Department of Labor, California has the third highest unemployment rate under Nevada and Michigan.

"Some borrowers have suffered during the recent financial crisis, so suspending the Member Home Loan Program allows us to concentrate on them while at the same time refocusing our limited staff on the overall CalPERS Fund," said Joe Dear, CalPERS Chief Investment Officer.

-- Written by Laurie Kulikowski in New York.

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Laurie Kulikowski

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