Tuesday, September 26, 2017

Credit Human to Receive $8.8 Million in Incentives to Relocate HQ

The City of San Antonio and Bexar County will provide Credit Human Federal Credit Union $8.8 million in tax and other incentives to move its headquarters to an office tower to be constructed at the Pearl.

Credit Human, formerly known as San Antonio Federal Credit Union, is the third largest credit union in San Antonio (TX).

The city has proposed offering up to $5.2 million in tax abatements and a $1.5 million tax rebate for the project, but the total value of both incentives would be capped at about $5.8 million, according to the Midtown Tax Increment Reinvestment Zone agenda.

The county is proposing a ten-year tax abatement worth a total of just under $3 million.

The project is expected to consist of two multi-story buildings, with the largest building being used for headquarters use for the credit union and mixed office and retail use. The 3.13 acre site on Broadway Avenue will comprise a total of 310,000 square feet of usable space and the construction of a total of 958 surface and underground parking spaces.

According to news reports, the price tag for the project is estimated at $113 million.

Under the incentive deal, the credit union would be required to pay its employees more than $11.83 an hour. After a year, 70 percent of the employees would have to make at least $15.68 an hour.

Read the agenda item.

Read story (subscription required).

Read an earlier story.

Research: Mixed Evidence that CU Tax Exemption Serves Intended Purpose

The Federal Reserve Bank of Richmond recently published an article, Credit Unions: A Taxing Question that suggests there is mixed findings as to whether the continuation of the credit union tax exemption is justified.

The paper analyzes the findings of various research papers on the credit union tax exemption.

The paper argues that there are two legislative justifications for the credit union tax exemption -- their mutual structure and their purpose of assisting those of modest means.

The paper points out that "[c]ritics of the credit union tax exemption have long used the repeal of the mutual savings bank tax exemption as evidence that credit unions should lose theirs." However, mutual savings banks lost their tax exemption because they were no longer "self-contained cooperative organizations." Despite the similarities between mutual savings banks and credit unions, the paper states credit unions still retain more of their cooperative qualities than mutual savings banks.

But I would note that the erosion of common bond is undermining the linkage between credit union borrowers and savers.

The paper then examines at the incidence of the tax subsidy. In other words, where does the tax subsidy go?

Citing work by Robert DeYoung and others, the authors found that the majority, but not all, of the tax subsidy was passed through to credit union members in the form of higher deposit rates. The authors also stated that an economically substantial amount of the subsidy was diverted away from credit union members, mainly by hiring too many workers and earning below marketr returns on investment securities.

While the credit union subsidy appears to be flowing to members, the other justification for the tax exemption is that credit unions target those of modest means. The evidence is mixed on whether this policy goal is being met. Credit unions claim that their common bond requirements may result in a selection bias that makes it harder for them to serve people of modest means. However, research looking at large Wisconsin credit unions with broad fields of membership found that large credit unions were targeting wealthier customers, as evidenced by the markets in which they locate branches and the income level of mortgage borrowers.

The paper concludes that "research performed on credit unions and the tax exemption reveals mixed results as to whether, on the whole, credit unions still serve the same purposes today as they did when they were first chartered in the early 20th century."

Monday, September 25, 2017

CU Taxi Medallion Lender Likened to Last Decade's Predatory Subprime Lenders

The Philadelphia Inquirer is compares the collapsing of the Philadelphia taxi market to the mortgage meltdown last decade and has some harsh comments about Melrose Credit Union (Briarwood, NY).

The article states:
"[L]enders drew up medallion loans with huge balloon payments, made to people who couldn’t afford them but who never worried about paying them off when they came due in three years. Why? Because the taxi business was golden, generating ample revenue. Meanwhile, just as with real estate, the value of medallions kept rising.

Besides, there was always another chance to refinance.

Until, suddenly, there wasn’t."

This sounds so familiar to the the subprime mortgage crisis.

At their peak in October 2013, taxi medallion prices were $530,000. However, after Uber and Lyft entered the market, taxi medallion prices dropped precipitously and as of August 2017 were at $52,000.

According to the Inquirer story, Melrose financed medallion loans through a broker to borrowers with bad or no credit history and who neither understand or spoke English. A complaint against Melrose alleges that underwriting of taxi medallion loans was non-existent.

It is estimated that Melrose lent more than $120 million to Philadelphia medallion owners.

Because the financing of medallion loans were through thee year balloon loans, that meant every three years borrowers needed new loans to pay off those balloon loans. This also ensured new fee revenues for Melrose.

The article further notes that after Melrose was seized by the New York regulator, the credit union exacerbated the decline in medallion values as it stopped lending in the market.

Read the article.

Friday, September 22, 2017

56 CUs Awarded $39.5 Million from CDFI Fund

The National Credit Union Administration (NCUA) is reporting that 56 federally-insured credit unions will receive awards from the Community Development Financial Institutions (CDFI) Fund.

The total amount of the awards were $39.5 million.

According to the press release, 27 credit unions were a first-time awardee.

Read the press release.

Thursday, September 21, 2017

To Get Tax Reform Right Treat Credit Unions Like Banks

Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, a senior fellow at the Manhattan Institute and an adjunct professor at George Washington University, wrote in U.S. News and World Report that tax reform should include ending the credit union industry's outdated tax exemption.

Furchtgott-Roth wrote that the credit union tax exemption does not make sense, since one principle of taxation is that similar businesses should be taxed the same.

Furchtgott-Roth noted that credit unions with $1 billion or more in assets are 4 percent of the credit union industry; but account for almost 75 percent of the tax benefit.

The opinion piece also stated the recent trend of tax-exempt credit unions buying taxpaying banks. Furchtgott-Roth pointed out: "This is no different from corporate inversions, except that no company has moved to Ireland."

Furchtgott-Roth concluded "[a]s Congress proceeds with tax reform, members should consider uprooting this outdated exemption and no longer picking winners and losers. Taxpayers should not have to subsidize a credit union's name on a stadium, or people's purchases of aircraft and boats."

Read the opinion piece.

Fox Communities CU Receives Waivers for Financing Exposition Center

The Wisconsin Office of Credit Unions on August 17, 2017 granted a waiver to Fox Communities Credit Union (Appleton, WI) with regard to construction and development loans and security and collateral requirements.

The National Credit Union Administration had no objections to the waiver approval as long as three contingencies were met.

According to information obtained in an Open Records Request, Fox Community was approved to provide $10.175 million in funding for a publicly owned exposition center, which would result in a loan-to-value ratio of 100 percent. However, the credit union management believes that its share of the funding is more likely to be $8 million. At $10 million, the loan will represent 6.67 percent of the credit union's net worth.

The total funding for the project is $31.5 million with the remainder of the financing coming from local/regional banks.

WI DFI-CU 72.04 2(a) requires a 25 percent equity interest in construction projects or 20 percent equity interest in a project being financed if the loan is for construction.

In addition, WI DFI-CU 72.07 (2) requires "[f]or a member business loan secured by collateral on which the credit union will have a first lien, a credit union may grant the loan with an LTV ratio in excess of 80% only where the value in excess of 80 percent is as follows:
(a) Covered through acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union, and the LTV ratio does not exceed 95 percent; or
(b) Insured or guaranteed, or subject to advance commitment to purchase, by an agency of the federal government, state, or any of its political subdivisions, and the LTV ratio does not exceed 95 percent.

The loan will be collateralized by a secured interest in a hotel room tax. Thirty percent of the 10 percent hotel room tax will be allocated to repay the loan. In addition, the borrower will establish a $1.5 million reserve account that can be used if hotel room tax revenues are insufficient.

Wednesday, September 20, 2017

46 NYC Taxi Medallions Sell for Under $200,000 in Auction

Crain's New York Business is reporting that 46 foreclosed New York City (NYC) taxi medallions sold at auction for $186,000 each.

The foreclosed tax medallions were bought by the hedge fund -- MPGE, Inc.

The $186,000-per medallion bid was for all 46 of the placards, which prevented the auction house from accepting one-off bids that would have priced a single medallion north of $200,000.

According to the story, taxi medallion prices have not been this low since the mid-1990s.

This would suggest additional losses await credit unions that originated or participated in NYC taxi medallion financing.

Read the press release.

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