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LATEST NEWS
Loans outpace savings, despite recession
MADISON, Wis. (1/5/09)--Credit unions' loan growth for November outpaced their savings growth, an anomaly given the recession, according to a Credit Union National Association (CUNA) economist interpreting CUNA's Monthly Credit Union Estimates.
Loans for the month grew 7.5% over November 2007, while savings grew 6.7% during the same period.
"For a recession, that's unusual," Steve Rick, senior economist at CUNA, told News Now. "Typically people retrench and pay down their debt. This is an aberration, likely caused by banks' tightened lending strategy. The aberration will continue as long as banks don't have an appetite to lend," Rick said.
The loan growth is good news, he said, adding, "Credit unions are still making loans. It's better to put the money in loans than in short-term instruments."
Still, loans in a recession mean more delinquencies.
"Delinquencies jumped 10 basis points (b.p.) from the previous month and 39 b.p. over a year ago," Rick said. The increase "is directly related to job losses. We're losing jobs at an accelerating pace and it will get worse throughout the year."
New-auto loans are still in the tank with the biggest decline in more than 20 years, he said, noting low consumer confidence as a key factor. However, "used-auto loans picked up significantly from last year." Rick said that during the credit crunch, the banking sector is shunning used-auto loans.
Home-equity loans turned around in the last year, up 11% year-to-date, compared with a minus 1.6% for the same period in 2007. "This is unusual because falling home prices are wiping out homeowners' equity, but the interest rates are so low, some homeowners are using home-equity loans to finance their spending. They're down to the very last remnants on their balances and we'll see more people hitting a ceiling in their borrowing limits," Rick said.
These loans are taking business from credit unions' credit card portfolios. "Credit card growth is anemic, with growth at 3.9% year-to-date, a significant turnaround from the 9.3% for the same period last year. People are paying off their credit cards because they're worried about jobs, debt and deleveraging," he said.
Rick noted that credit union borrowing is at $42 billion, a 67% increase from the $25 billion last year. "Credit unions want to keep increasing their liquidity," he said.
As for savings growth, money markets were the fastest growing savings vehicle--up 14%. "Everyone wants their money to be liquid rather than be locked up in certificates of deposit (CDs)," Rick said.
With the falling prices in the stock market, depositors want safety. "In the Safety, Liquity, Yield (SLY) equation, savers want return of their capital, not return on their capital. Right now in the SLY equation, safety and liquidity are dominant," Rick told News Now.
Go to http://advice.cuna.org/ to access the Monthly Credit Union Estimates for November.
NCUA unveils loan participation guidance
WASHINGTON (12/30/08)—The National Credit Union Administration (NCUA) has released the guidance and questionnaire the agency's field staff uses to assist in evaluation of loan participation programs.
The overall theme of the agency's release is that credit unions must apply the same principles to loan participations that they apply to evaluating, selecting and monitoring third-party relationships.
The NCUA has previously expressed concern regarding loan participation arrangements and it has been expected that the federal regulator would issue more direction to help credit unions avoid pitfalls.
The agency reported that outstanding loan participations more than doubled between 2003 and 2008, increasing 262% in that period compared to a 149% increase in total loans.
What's more, the NCUA said annualized total dollars of loan participations charged off in 2008 were twice 2006 levels, resulting in the charge-off ratio increasing from 0.41% in 2006 to 0.64% in 2008. The charge-off ratio for total loans increased from 0.46% in 2006 to 0.75% in 2008.
Loan participation delinquency was 1.10% in 2006 and 2.27% in 2008. Total loan delinquency was 0.68% in 2006 and 1.13% in 2008.
The NCUA maintains that loan participation programs have their place. In his Letter to Federal Credit Unions, with guidance attached, NCUA Chairman Michael Fryzel said that properly managed loan participation programs can be beneficial to both selling and buying credit unions.
A credit union selling loan participations may gain a mechanism to manage interest rate, liquidity, and credit risks as well as an enhanced ability to serve members. The purchasing credit unions may benefit from balance sheet diversification and increased revenue.
However, the chairman reminded that there are potential risks and advised that a credit union should perform a comprehensive risk assessment before beginning loan participation activities. Due diligence, he said, is a key factor in assuring risks are identified and mitigated.
The guidance and questionnaire (http://www.ncua.gov/news/express/xfiles/SupervisoryLetter_Final.pdf) regarding evaluating loan participation programs sets our 11 pages of direction and resources to assist credit unions in setting up successful programs. It describes practices examiners will find in a well-run loan participation program involving any type of loans, including automobiles, residential mortgages, and member business loans.
The NCUA, for instance, recommends that a credit union deciding to engage in or develop a loan participation program start out small, gain experience, and build from that foundation.
"A loan participation is a third-party relationship between a seller and a buyer, and as with any third-party relationship, the benefits of loan participations are accompanied by a variety of potential risks. Management should complete a risk assessment and perform due diligence prior to entering the third-party arrangement," the guidance said.
This guidance describes practices examiners will find in a well-run loan participation program involving any type of loans, including automobiles, residential mortgages, and member business loans.
CUSO powers expanded by NCUA
WASHINGTON (12/19/08)—Credit Union Service Organizations (CUSOs) will now have authority under a new rule to offer two new categories of activities to credit unions: credit card loan origination and payroll processing services.
The rule, adopted Thursday by the National Credit Union Administration (NCUA), also adds new permissible activities within existing categories and expands the scope of certain services to include persons eligible for credit union membership.
New permissible activities under the board's action are related to the routine daily operations of credit unions and include:
- Real estate settlement services;
- Employee leasing and support;
- Purchase of non-performing loans;
- Business counseling and related services for credit union business member; and
- Referral and processing of loan applications for members turned down by the credit union.
The changes will go into affect 30 days after the regulation is published in the Federal Register, and publication is likely to occur within the next week or so.
Regarding the expansion of certain services to individuals within a field of membership who are not members of the credit union, the NCUA said allowing this authority for CUSOs reflects provisions in the Financial Services Regulatory Relief Act of 2006, which granted similar authority to credit unions.
The NCUA modified a provision in its original proposal that would have given the agency access to the books and records of CUSOs that are owned by federally insured, state-chartered credit unions (FISCUs).
The final rule adopts a procedure whereby a state credit union regulator can request an exemption for FISCUs in that state under certain conditions.
An exemption may be granted if the state regulator has full rights of access to relevant books and records of the CUSO under state law and is willing and able to provide NCUA with equal access, and access must be available to the NCUA on its own timetable.
Get more information on the NCUA's new CUSO rule here.
CUNA Annual Survey to be sent to CUs
MADISON, Wis. (12/19/08)--The Credit Union National Association (CUNA) Annual Survey will be mailed out to all U.S. credit unions at the start of January.
This year CUNA has added a special question on back office services that should enable it to help credit unions to find more sources for the services.
The survey is used to track new trends in credit union service offerings not covered by the National Credit Union Administration 5300 Call Report.
"It is our only source of information on the number of groups in credit union fields of membership," said Marc Shafroth, CUNA director of data and statistics. "This year we have added a section to help us answer the frequently asked question: How many members join credit unions each year and how many leave? From the 5300, we only know the net gain."
The survey allows CUNA to answer questions from the public, government agencies and elected officials. It can be completed on the Web.
"The time required to complete the survey should be under 15 minutes," Shafroth said. "We hope that you will be able to spare this time and this way help the movement collect the information it needs to prosper."
If you have any questions about the survey please contact Marc Shafroth at 608-231-4182 or mshafroth@cuna.coop.
NCUA Webcast Details CU HARP, CU SIP
December 16, 2008, Alexandria, Va. – NCUA Chairman Michael E. Fryzel introduced a 1 ½ hour audio webcast that attracted over 1,400 participants today, detailing the Credit Union Homeowners Affordability Relief Program (CU HARP) and Credit Union System Investment Program (CU SIP) introduced last week. The webcast was jointly sponsored by CUNA and NAFCU, and was held at NCUA offices in Alexandria.
“These important programs represent NCUA efforts to utilize the tools given to us by Congress to work proactively with the industry and enable you and your members to weather the financial storms affecting our Nation’s markets,” stated Chairman Fryzel. “This is the latest in a series of constructive approaches by the credit union trade associations as we continue our efforts to devise workable, pragmatic solutions to the problems confronting us.”
J. Owen Cole, NCUA Director of the Office of Capital Market and Planning and President of the Central Liquidity Facility (CLF) and Steve Sherrod, Director of the Division of Capital Market and Vice President of the CLF, the principal staff architects of CU HARP and CU SIP programs described program details and answered callers’ questions.
CU HARP is a two-year, $2 billion program intended to assist homeowners who are facing delinquency, default, or foreclosure on their mortgages, especially in the face of diminished home prices. Under CU HARP, participating creditworthy credit unions would borrow from the CLF, and receive as much as an additional 100-basis point spread over the cost of borrowing if they modify at-risk mortgages, primarily by lowering interest rates and corresponding monthly payments. Under CU SIP, participating creditworthy credit unions would borrow from the CLF and invest the proceeds in participating corporate credit unions. Credit unions participating in this program receive a spread of 25 basis points.
The CU HARP and CU SIP audio webcast will be posted within several days and available for 90 days online at: http://www.ncua.gov/NCUABoard/BoardMembers/Fryzel/Presentations.html and on the CLF website: http://www.ncua.gov/CLF/index.htm.
What's on for Congress' second lame duck
WASHINGTON (12/9/08)—The U.S. Congress returned to Washington Monday to begin a second lame duck session, with focus primarily on consideration of legislation to bailout automobile manufacturers.
CUNA Vice President for Legislative Affairs Ryan Donovan said that the association will be monitoring the development of this legislation closely.
"Everyone's expectation is that the bailout bill will be carefully negotiated between Congress and the Bush administration, and very limited in scope," Donovan said.
And in fact, The New York Times and other media outlets reported late in the day that an agreement between the White House and Congressional Democrats moved forward.
The tentative plan would call for a taxpayer-financed rescue with an administration-appointed overseer with expertise in areas such as economic stabilization, financial aid to commerce and industry, financial restructuring, energy efficiency and environmental protection.
It is expected that when Congress adjourns this week—most likely with an automaker package hammered out--it will remain out of session until Jan. 6 when congressmen and senators will be sworn into office for the 111th Congress.
The federal lawmakers may be quite busy even before the Jan. 20 swearing in of Barack Obama as the 44th President. The House calendar currently features at least 10 days slated for votes. A January calendar has not yet been released by Senate leadership. As reported earlier, there is a House Financial Services Committee hearing scheduled this Wednesday on oversight concerns regarding the U.S. Treasury Department's implementation of the Troubled Asset.
CU loans and savings both up in October
MADISON, Wis. (12/3/08)--The U.S. entered a recession in December 2007 that continues to this day, the National Bureau of Economic Research reported Monday. So far this year, credit union members have responded to the recession as expected by increasing their savings balances, said Steve Rick, Credit Union National Association (CUNA) senior economist.
October's statistics show that with payday falling on the last day of the month, credit union savings balances increased 1.5% to $695 billion from $685 billion in September, according to the CUNA monthly sample of credit unions.
Share balances increased 6.6% during the first 10 months of 2008. Share drafts increased 7.2% while one-year certificates grew 1.5%, and individual retirement accounts rose 1.2%. Regular share and money market accounts declined 0.3% and 0.03%, respectively.
"During the first 10 months of 2008, credit union savings balances rose 6.6%, faster than the 3.7% reported for the similar period in 2007," Rick said. "Regular share balances rose 5% so far this year, up from a 5.2% drop for the similar period in 2007. Recessionary fears are encouraging members to increase their 'precautionary' regular share balances," he told CUNA’s News Now.
Money market account balances rose 13.5% for the period, up from 8.9% for the similar period last year, he added. "Low market interest rates are encouraging members to increase their 'speculative' money market account balances," Rick said. "Members are placing their investment funds in liquid money market accounts rather than illiquid low-rate share certificates.
"Members are speculating that market interest rates are nearing their bottom and will move investment funds back to certificates of deposit once interest rates head back up," Rick said. "With this recession expected to last for another six to 12 months, credit unions should expect both regular share and money market account growth to increase in 2009, while share certificate balances to actually decline."
Credit union loans outstanding increased 0.5% in October from September, and 6.6% over the first 10 months of 2008, compared with increases of 0.7% and 5.6% during the same period last year.
Home equity loans led loan growth with a 1.4% increase, followed by a 1.1% rise in adjustable-rate mortgages, a 0.6% increase in used-auto loans, and a 0.4% increase in fixed-rate first mortgages. Unsecured personal loans declined 1.2%, followed by a 0.3% decline in new-auto loans, and 0.2% decline in credit card loans.
Fixed-rate first mortgages and adjustable-rate mortgages had the highest year-to-date increases, rising 15.4% and 11.8%, respectively.
With savings growth outpacing loan growth, the loan-to-savings ratio decreased to 83.4% in October from 84.3% in September.
The liquidity ratio--the ratio of surplus funds maturing in less than one year to borrowings plus other liabilities--grew to 15.7% in October from 14.7% in September.
Credit unions' 60-plus-day delinquencies remained constant at 1.1%.
The movement's overall capital-to-asset ratio remains at 11%, with the total dollar amount capital at $90 billion, according to CUNA's sample.
Marquis to become NCUA executive director
ALEXANDRIA, Va. (12/2/08)--The National Credit Union Administration (NCUA) Board today selected Examination and Insurance Director David M. Marquis to assume the role of NCUA executive director upon departure of J. Leonard Skiles, who will retire at year-end 2008.
Marquis has served as director of the Office of Examination and Insurance since 1994, where he is responsible for the sound operation of the National Credit Union Share Insurance Fund, and oversees the examination and supervision program for federal and federally insured credit unions.
Marquis began his NCUA career with NCUA as an examiner in Baltimore in 1978. He holds a degree in accounting from Lowell University in Lowell, Mass.
Skiles will leave the agency after a 38 year NCUA career that began as a staff attorney in the General Counsel's Office in 1973. He was appointed NCUA executive director in February 2001.
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