Tuesday, September 30, 2014

Republic Hose Employees FCU Liquidated

The National Credit Union Administration liquidated Republic Hose Employees Federal Credit Union of Youngstown, Ohio.

NCUA made the decision to liquidate Republic Hose Employees Federal Credit Union and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

As of June 2014, the credit union was adequately capitalized. Almost 7 percent of its loans were delinquent. The credit union reported a loss for all of 2013 and the first half of 2014.

Republic Hose Employees Federal Credit Union served 455 members and had assets of $581,487.

Read the press release.

The Great Divide

Second quarter financial performance data for federally-insured credit unions show that there is a growing divide between the largest credit unions and smallest credit unions.

Large credit unions -- those with more than $500 million in assets -- reported a return on average assets of 96 basis points, while small credit unions with less than $10 million in assets reported a loss with a return on average assets of minus 5 basis points.

Eight hundred and forty small credit unions reported a loss through the first six months of 2014. In addition, only 894 small credit unions (or 43 percent of small credit unions) reported higher earnings for the first six months of 2014 compared to a year earlier.

In comparison, only 3 credit unions with more than $500 million in assets reported losses through the first half of 2014. Also, 231 out of 448 large credit unions (or nearly 52 percent of large credit unions) reported higher earnings through the first half of 2014 compared to the same time period in 2013.

In addition, small credit unions posted negative growth rate in net worth, membership, and loans during the first six months of 2014.

Large credit unions, on the other hand, reported that net worth grew by 9.69 percent, membership increased by 6.35 percent, and loans expanded 10.9 percent.

Thursday, September 25, 2014

Credit Unions, Starter Interrupter Devices, and Collections

The New York Times is reporting that First Castle Federal Credit Union in Covington, La. is using starter interrupter devices to track the location of the cars that it has financed.

According to the article, the head of collections for the credit union, Lionel M. Vead Jr., uses the device to monitor the movements of about 880 subprime borrowers on a computerized map. If a borrower has fallen behind on his or her payment, Mr. Vead can remotely disable the vehicle from his computer or mobile phone.

The article quotes Mr. Vead about disabling a car while shopping at a Walmart.

He noted that once he disabled the vehicle, the borrower will call him within minutes looking to make the payment.

He is also encouraging other credit unions to use the technology.

Moreover, Lender Systems of Temecula, Calif., which sells a range of starter interrupt devices, has seen its revenues more than doubled so far this year, buoyed by an influx of new credit union customers.

However, this practice, while improving collections, does raise privacy concerns. 

Read the story.

Credit Unions and Jumbo Mortgages

An article in The Wall Street Journal advises readers to look at credit unions for jumbo mortgages; but also warns readers to shop around.

The article points out that credit unions have grown their market share of mortgages from 3 percent to 10 percent over the past decade; but jumbo mortgages remain a small part of the total mortgage volume of most credit unions.

In general, it is the larger credit unions, like Navy FCU (Vienna, Va.), Bethpage FCU (Bethpage, NY), and PenFed (Alexandria, Va.), that are making these loans, although some smaller credit unions originate jumbo mortgages for relationship building.

Those credit unions that are offering jumbo mortgages tend to operate in markets with higher real estate prices, such as Washington, D.C., California, and Long Island, NY.

However, the article points out that interest rates on credit union jumbo mortgages are not necessarily lower than those offered by banks or other lenders and the amount that credit unions have to lend tends to be smaller.

Therefore, if you are looking for a jumbo mortgage, it pays to shop around.

Read the article (subscription required).

Wednesday, September 24, 2014

Appeals of Material Supervisory Determinations

A paper by Julie Andersen Hill at a conference sponsored by Federal Reserve System/Conference of State Bank Supervisors examined appeals of material supervisory determinations (MSDs) by financial institutions to the various federal banking agencies.

Beginning on page 47 of the paper, the author looks at the appeal process for the National Credit Union Administration.

According to the paper, there were 140 contacts by credit unions with NCUA Region Offices between 2002 and 2012. Ninety percent were by federal credit unions and 10 percent were by state chartered credit unions.

The paper found that "disagreement over CAMEL composite or component ratings was the most common reason that credit unions used the MSD appeals process. Additionally, 47 appeals involved a document of resolution."

However, the paper noted that credit unions rarely succeeded in overturning the initial examination determination, as seventy percent of the appeals upheld the initial examiner decision. In less than 20 percent of the appeals did the Region Office amend the MSD.

Moreover, very few appeals were filed with NCUA's Supervisory Review Committee (only six between 1995 and 2012) and the Supervisory Review Committee in each instance upheld the examiners' decisions.

The paper also pointed out differences between NCUA and the other federal banking agencies regarding their appeal processes.

For example, the OCC, Federal Reserve, and FDIC allow financial institutions to appeal any examination rating. The NCUA, however, only allows appeals of composite CAMEL ratings of 3, 4, and 5 and all component ratings of those composite ratings. The author concluded that this means credit unions have less access to an appeals process compared to other financial institutions.

The author concludes that federal banking regulators need to strengthen their MSD appeals process. This would include giving financial institutions direct access to a dedicated appellate authority outside of the examination function; requiring the appellate authority to employ a clear and rigorous standard of review; and disclosing detailed information about each decision reached by the appellate authority.

Tuesday, September 23, 2014

AgFed Using Group to Circumvent FOM Limitation

Washington, D.C.-based Agriculture Federal Credit Union (AgFed) must stop advertising that “everyone is welcome” to join, ABA said in a letter on September 22 to the National Credit Union Administration.

ABA cited AgFed’s website, which says “Everyone is welcome. Join today.” AgFed invites ineligible individuals to join by becoming members of CityDance for $20.

ABA urged NCUA to order AgFed not to advertise that everyone can join and to conduct a quality assurance review of CityDance to ensure that it truly meets the associational common bond requirement.

NCUA last year warned credit unions to avoid “overly aggressive marketing campaigns ... providing consumers with misleading information about single and multiple common bond membership requirements.” The agency is also conducting reviews of third-party groups that CUs use to circumvent common bond requirements.

Read the letter.

Monday, September 22, 2014

TILA Rescission Case

The Supreme Court will hear arguments in November that will be of interest to all lenders that originate mortgages.

The question before the Supreme Court is:
Does a borrower exercise his right to rescind a transaction in satisfaction of the requirements of Section 1635 of the Truth in Lending Act (“TILA”) by “notifying the creditor” in writing within three years of the consummation of the transaction, as the Third, Fourth, and Eleventh Circuits have held, or must a borrower file a lawsuit within three years of the consummation of the transaction, as the First, Sixth, Eighth, Ninth, and Tenth Circuits have held?

TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f).

The American Bankers Association along with other trade groups filed a friend-of-the-court brief urging the Supreme Court to uphold the appellate court decision in Jesinoski v. Countrywide. The appellate court in Jesinoski ruled that to rescind a mortgage, a borrower must file a lawsuit before three years are up, as most other appellate circuits have found.

The petitioners are urging the Supreme Court to find that a written notice of intent to rescind a mortgage is sufficient within the three-year window.

ABA and the other groups argued that the petitioners’ approach, however, would “fundamentally undermine the finality and clarity Congress intended this statute to provide.”

Moreover, the petitioners' approach would allow a borrower to strip a creditor of its security interest instantaneously and unilaterally — even if the creditor complied fully with TILA. But most importantly, it would cast a shadow of uncertainty over the housing finance market, resulting in additional costs to borrowers.

Read the brief.

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