Wednesday, June 28, 2017

Legal Opinion: Asset Securitization Is An Incidental Power

On June 21, the National Credit Union Administration (NCUA) published a legal opinion letter stating that asset securitization is an incidental power for federal credit unions.

But the agency pointed out that it is not a pre-approved activity. Before a federal credit union (FCU) securitizes any assets, it needs to complete and submit an application to NCUA.

The letter also stated that in the case of Government National Mortgage Association (Ginnie Mae) securities, the Federal Credit Union Act (FCUA) expressly authorizes this activity.

The letter noted that that an activity is an “incidental power,” even if not expressly authorized under the FCUA or NCUA’s regulations, if it:
(a) Is convenient or useful in carrying out the mission or business of credit unions consistent with the [FCUA];
(b) Is the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions; and
(c) Involves risks similar in nature to those already assumed as part of the business of credit unions.

NCUA wrote: "[I]ssuing and selling securities is consistent with the FCUA, and is convenient and useful in carrying out the mission or business of FCUs." Securitizing assets provide an FCU with an important source of liquidity to further facilitate its lending activities and makes it less dependent on share deposits to fund its member loan demand.

NCUA further noted that "[s]ecuritization can increase the amount of credit available to consumers and businesses, due to the fact that an FCU can make more loans to its members with a given level of capital. It also provides an FCU with a vehicle to transfer credit risk to investors. NCU concludes that securitization is a logical outgrowth of providing credit.

NCUA concluded that "securitization involves risks that are similar in nature to those already assumed as part of the business of credit unions."

Large federal credit unions are the credit unions most likely to take advantage of this legal opinion.

Read the letter.

Read the American Banker article (subscription required).

Monday, June 26, 2017

LOMTO Federal Credit Union Placed into Conservatorship

The National Credit Union Administration (NCUA) on June 26th placed LOMTO Federal Credit Union in Woodside, New York, into conservatorship.

NCUA placed LOMTO Federal Credit Union into conservatorship because of unsafe and unsound practices at the credit union.

The credit union's financial performance has been battered by bad taxi medallion loans due to the disruption of the taxi industry by ridesharing companies such as Uber and Lyft.

Read my blog post from May 10 on LOMTO FCU's financial performance through the first quarter of 2017.

LOMTO Federal Credit union has 2,958 members and $236,468,882 in assets, according to the credit union’s most recent Call Report.

​This is the third New York City taxi medallion lending credit union to be seized by regulators.

Melrose Credit Union was placed into conservatorship earlier this year and Montauk was seized in 2015 and merged into Bethpage FCU in 2016.

Read the press release.

Trade Groups Support Structural Change in CFPB to Five-Member Commission

In a June 22nd joint letter to House and Senate Appropriations Committee leadership, 22 financial and business trade associations supported the inclusion of language in the fiscal year 2018 spending bill that would transition the governance structure of the Consumer Financial Protection Bureau (CFPB) from a single director to a bipartisan, five-member commission.

The trade groups noted that by a three-to-one margin, registered voters support such a structure for the regulatory watchdog agency, according to data from Morning Consult.

“A Senate-confirmed, bipartisan commission will provide a balanced and deliberative approach to supervision, regulation, and enforcement for consumers and the financial institutions the CFPB oversees by encouraging input from all stakeholders,” the associations said. “The current single director structure leads to regulatory uncertainty and instability for consumers, industry, and the economy, leaving vital consumer financial protection subject to dramatic political shifts with each changing presidential administration.”

Read the letter.

Friday, June 23, 2017

NCUA Conserves Citizens Community CU

The National Credit Union Administration (NCUA) on June 23 placed Citizens Community Credit Union, located in Devils Lake, North Dakota, into conservatorship.

NCUA placed Citizens Community Credit Union into conservatorship because of unsafe and unsound practices at the credit union.

Citizens Community Credit Union posted a loss of $933,194 during the first quarter of 2017 due to provisions for loan losses of $978,000. A year earlier provisions for loan and lease losses were zero.

While the credit union was well-capitalized at the end of the first quarter, the credit union reported that 6.79 percent of its loans were 60 days or more past due. Delinquent loans were $10.8 million. Early delinquencies (loans 30 to 59 days past due) were almost $5.9 million.

Citizens Community Credit Union appears to be under-reserved with a coverage ratio (allowances for loan and lease losses to delinquent loans) of 27.47 percent.

Citizens Community Credit Union is a federally insured, state-chartered credit union with 11,399 members and assets of $201,255,973, according to the credit union’s most recent Call Report.

Read the press release.

NCUA Calls on Congress to Give It Regulatory Flexibility

In testimony before the Senate Committee on Banking, Housing, and Urban Affairs on June 22, National Credit Union Administration (NCUA) Acting Chairman J. Mark McWatters requested legislation to ease regulatory burdens on credit unions.

His testimony discussed steps that the agency had already taken or plans to take to provide regulatory relief to credit unions. But he also noted that there are limits on the agency's ability to provide regulatory relief.

Acting Chairman McWatters pointed out that the Federal Credit Union Act contains numerous rigid statutory requirements that ties the agency's hands. NCUA asked Congress to provide it with greater discretion to write rules to limit additional burdens on credit unions.

In addition, McWatters called on congressional action with regard to field of membership issues. NCUA believes that all federal credit unions, just not multiple common bond credit unions, should be allowed to add underserved areas. In addition, Congress should eliminate the requirement that the underserved areas be local communities and Congress could simplify the “facilities” test for determining if an area is underserved.

McWatters further requested that Congress eliminate the provision that requires a multiple common bond credit union to be within “reasonable proximity” to the location of a group the credit union wishes to serve.

He also asked Congress for the explicit authority for web-based communities as a basis for a credit union charter.

Other legislative initiatives advanced in his testimony included support for the Credit Union Residential Loan Parity Act (S. 836) and allowing more credit unions to access supplemental capital.

Read testimony.

Thursday, June 22, 2017

Riverdale Credit Union Conserved

The Alabama Credit Union Administration today placed Riverdale Credit Union, in Selma, into conservatorship and appointed the National Credit Union Administration (NCUA) as agent for the conservator.

The Alabama Credit Union Administration and NCUA placed Riverdale into conservatorship because of unsafe and unsound practices at the credit union.

The credit union was well-capitalized at the end of the first quarter of 2017 and had an annualized return on average assets of 3.88 percent. The credit union reported that 3.69 percent of its loans were 60 days or more delinquent. Net charge-offs as a percent of average loans was 1.88 percent.

Riverdale has 12,433 members and $76,181,951 in assets, according to the credit union’s most recent Call Report.

Read NCUA press release.

Study: CUs and Community Banks Face Serious Demographic Challenge

The Financial Brand recently commented that credit unions and community banks face the threat of generational obsolescence.

TA study by FIS examined the age composition of bank and credit union customers.

According to the study, approximately 32 percent of credit union members are millennials -- almost the same as regional banks (34 percent). In comparison, 18 percent of bank customers are millennials. On the other hand, the 50 largest banks have a millennial penetration rate of 42 percent.

While credit unions have roughly the same penetration rate as regional banks, credit unions are losing ground to the largest banks, as large and regional banks scoop up a disproportionately larger share of the millennial generation.

In addition, the FIS study found that community banks and credit unions tend to serve an older population base. Approximately 57 percent of community bank customers and 46 percent of credit union members are over the age of 52.

Read the story.


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