Saturday, September 29, 2012

El Paso's FCU Closed

The National Credit Union Administration (NCUA)liquidated El Paso’s Federal Credit Union (EPFCU) of El Paso, Texas.

NCUA made the decision to liquidate EPFCU and discontinue operations after determining the credit union was insolvent and had no prospect for restoring viable operations.

The credit union reported a loss of almost $63,000 through the first half of 2012. In addition, the credit union reported that 9.29 percent of its $1.4 million in loans were at least 60 days or more past due. However, the credit union was classified as well-capitalized as of June with net worth ratio of 11.38 percent.

EPFCU served 1,035 members and had deposits of approximately $4.4 million, according to the credit union’s June 2012 Call Report.

EPFCU is the ninth federally insured credit union liquidation in 2012.

Read the press release.

Friday, September 28, 2012

NCUSIF Losses by CU Asset Size, 1998 - 2012

NCUA in its proposed rule regarding the definition of a small credit union published information on the history of failures among credit unions of various asset size categories that caused losses to the National Credit Union Share Insurance Fund (NCUSIF) from 1998 through year-to-date 2012.

Since 1998, there have 262 credit union failures that have resulted in $945.4 million in losses to the NCUSIF.

The following table shows the the number of failures, NCUSIF losses, and average size of loss by asset size group. This information does not include losses from the failure of five corporate credit unions.

Tuesday, September 25, 2012

Landmark CU to Acquire Hartford Savings Bank

Landmark Credit Union said Tuesday it has applied to regulators to acquire Hartford Savings Bank.

New Berlin-based Landmark, which with $2 billion in assets is Wisconsin's largest credit union, said it hopes to acquire the bank by the end of this year.

Hartford Savings Bank has more than $190 million in assets.

Read the story.

Durbin Amendment Hurts Consumers, Community Banks, and Credit Unions

Despite retailers’ $8 billion windfall nearly a year after the Durbin amendment’s implementation, consumers still aren’t getting the lower prices they were promised, bank and credit union trade groups said in a September 21 letter to congressional leaders.

The trade groups also cited a recent Government Accountability Office (GAO) report that shows the many hardships that community banks and credit unions have endured since the amendment went into effect.

“[F]or smaller community banks and credit unions, which were supposed to be ‘exempted’ from the fallout of this legislation, interchange revenue dropped by 5 percent in just the first three months of implementation, and that was before the network exclusivity and routing provisions took effect in April 2012,” they said.

The study also notes that community banks and credit unions are struggling to maintain viable debit programs and some have had to raise fees. “The GAO … concludes that even more harm to community banks and credit unions is likely as the marketplace evolves,” the trade groups said.

They emphasized that any further regulation involving interchange fees is not only unnecessary, but an insult to consumers who have yet to see discounts for using their debit cards. “It’s clear that some retail groups will never be satisfied with any amount of windfall they receive,” the trade groups said. “It’s time to put this epic battle to a close before even more damage is done.”

Read the letter.

Monday, September 24, 2012

Annoying Challenge

NCUA has made the user experience of researching the financial information of a credit union more annoying.

You now have to type in a two word challenge before you can download a pdf of a credit union's call report.

My problem is sometimes I can't make out some of the words they want you to type. For example, below is an image of the challenge I got during a research search.

In comparison, the Federal Deposit Insurance Corporation (FDIC) does not require any challenge to access bank call reports.

Come on NCUA, make the user experience of your website more enjoyable and less frustrating.

Friday, September 21, 2012

Technology CU to Remain a Credit Union

An overwhelming majority of Technology Credit Union’s members who voted opposed the credit union’s plan to switch to a mutual savings institution charter.

According to the credit union's press release, approximately 25 percent of eligible members voted, with nearly 77 percent of those voting against becoming a mutual savings institution.

Technology Credit Union expressed frustration with the regulatory process and rules governing how a credit union can communicate with its members during the conversion process.

Barbara Kamm, President and CEO of Technology Credit Union stated:

“Members at the special meeting voiced frustration, saying we did not make a compelling case for charter change. We, too, are frustrated that we were unable to communicate our views effectively and in the open manner we would have preferred because of the regulatory process and the related rules that govern how credit unions can communicate about charter change with their members.”

Read the press statement from Technology Credit Union.

Thursday, September 20, 2012

Illinois CU Fined for Improper Loan

Moline-based DHCU Community Credit Union was fined $10,000 by the Illinois Department of Financial and Professional Regulations for making an improper unsecured loan to a member of its executive management team.

On September 21, 2011, the credit union made an unsecured loan for $350,000 to a member of its executive management staff.

However, the maximum unsecured loan limit for a credit union under Illinois administrative rules is $40,000.

During an examination in March, the improper loan was identified. The state credit union regulator gave the credit union until May 31, 2012 to divest the loan.

The credit union asked for an extension to June 30, 2012 and the extension was granted.

A follow up examination to see if the loan had been divested found that only a portion of the improper loan had been divested and the remaining balance ($85,000) had been reclassified as "Other Assets."

The credit union failed to remedy the violation and was fined $10,000.

Read the civil penalty order.

Keeping Member-Owners in the Dark

Credit unions love to talk about how their members are owners.

But the reality is that most credit unions don't act as if their members own the institution.

If they did, then a credit union would disclose to its members a material event that affects the operation of a credit union.

For example, when is the last time you read about a credit union disclosing a regulatory enforcement action that it entered into with its regulator.

If credit union members are owners, they should be notified about events that could adversely impact their ownership interest. They should not be kept in the dark.

At a minimum, credit unions with at least 2,000 member-owners should be subject to the same transparency requirements as publicly-owned companies.

Tuesday, September 18, 2012

NCUA Redefines "Fleet" for Business Lending Purposes

In a new legal opinion letter to Community First Credit Union in Jacksonville (FL), NCUA updated its definition of a "fleet" as the agency viewed its current definition as overly restrictive.

John Hirabayashi, President and CEO of Community First CU, stated that NCUA's definition of fleet hampered a credit union’s ability to establish relationships with small businesses.

NCUA had previously defined the term "fleet" to mean two or more vehicles used to deliver a product or service integral to business. The new definition is five or more vehicles that are centrally controlled and used for a business purpose, including for the purpose of transporting persons or property for commission or hire.

NCUA based its new definition upon auto industry standards and the Internal Revenue Service's definition of a fleet.

This means that a credit union making vehicle loan to a member with fewer than five vehicles will not have to comply with the maximum loan-to-value ratio for member business loans of 80 percent.

This revised definition will provide credit unions with greater flexibility in making vehicle loans to their members for business purposes and allow credit unions to pursue small business customers.

Read the letter.

Monday, September 17, 2012

Trades to CFPB: Support Safe Harbor for Qualified Mortgages

Ten trade groups, including the ABA, CUNA, and NAFCU, on Friday wrote to the Consumer Financial Protection Agency reiterating their position on the “qualified mortgage” -- or QM -- standard under the pending ability-to-repay rule. We “want to express our continued strong support for a QM that meets three critical requirements,” they said in a letter to CFPB Director Richard Cordray.

Those requirements are: the QM must be broadly defined to include the vast majority of very high quality loans originated in today’s market; its product, documentation and underwriting requirements must be based on objective, bright-line standards; and lenders and investors must be granted a clearly defined legal safe harbor from ability-to-repay litigation when they originate loans that meet the QM standards.

“We believe a broad definition of QM with bright-line standards embedded in a legal safe harbor is the only sure means to serve the widest array of qualified borrowers with affordable credit,” the trade groups said. “A legal safe harbor with such standards will reduce the uncertainty associated with QM litigation and ease the need for lenders and investors to establish conservative credit overlays.”

They added that such a safe harbor also will permit claims by borrowers when the standards have not been met. “In short, a safe harbor will result in far more mortgage borrowers obtaining sustainable credit than a QM rule with a rebuttable presumption,” the trade groups said.

Read the letter.

Friday, September 14, 2012

CFPB Should Drop APR Proposal

Sixteen trade groups, including ABA and the National Association of Federal Credit Unions, urged the Consumer Financial Protection Bureau to drop a proposal to create a new, higher “all in” annual percentage rate calculation that would include additional fees and charges. The APR measure is part of the CFPB’s massive proposed rule intended to combine and simplify mortgage disclosure requirements under the Truth in Lending Act and Real Estate Settlement Procedures Act.

The trade groups noted that the CFPB’s own research shows that consumers confuse the APR with the note rate and it is of little value to them. “Simply adding additional fees to an unhelpful formulation that consumers do not use or understand will add significant costs and complications to the rulemaking effort, with no measurable benefit to the borrower,” they said.

The trade groups also pointed out that the APR is embedded in numerous other mortgage finance rules as a trigger for added compliance requirements, and it isn’t clear how the reconfigured APR would affect such rules. They emphasized that the Dodd-Frank Act doesn’t require wholesale changes to the APR and urged the CFPB to simplify the RESPA-TILA rulemaking by focusing only on elements needed to implement the statute’s requirements.

Finally, the trade groups asked the CFPB to publish a single version of Regulation Z that would reflect how it would be amended by all pending proposals. “This would improve our ability to provide input that CFPB will need before the comment periods close,” they said.

Read the letter.

Thursday, September 13, 2012

Privately Insured CUs Face Another Special Assessment

American Share Insurance announced that privately insured credit unions will be assessed a special assessment of 9 basis points.

American Share Insurance stated that low yields on investments and the continuing funding of loss reserves required the special assessment.

The premium will be assessed of all primary insured member credit unions of record as of September 30.

In the prior three years, privately insured credit unions paid assessments of 15 basis points each year.

Wednesday, September 12, 2012

553 FCUs Opt for Low-Income Designation

NCUA announced that 553 federal credit unions opted for a low-income designation. As a result, there are now 1,740 low-income designated credit unions.

On August 7, the agency notified more than 1,000 federal credit unions that they were eligible for low-income designation. The credit unions had until September 10 to opt-in.

The initiative was included as part of the Obama Administration's relief package for 27 drought-stricken states.

The newly designated low-income credit unions serve 5.9 million members and manage more than $49 billion in combined assets.

Nearly half (260) of the credit unions—representing 49 percent of new LICU assets and 50 percent of new LICU members—that accepted the LICU designation are headquartered in states affected by the drought.

ABA has filed a Freedom of Information Act request for the list of 553 credit unions that received this low-income designation.

Read the NCUA press release.

Undercapitalized Credit Unions, June 2012

There were 120 undercapitalized credit unions with $7.25 billion in assets as of June 30, 2012.

This is down from 132 undercapitalized credit unions at the end of the first quarter of 2012.

Seven credit unions were critically undercapitalized and 21 credit unions were significantly undercapitalized.

Tuesday, September 11, 2012

Video of Mortgage Recording Tax Case

The Court of Appeals, New York's highest court, has posted a video of the oral arguments in Hudson Valley Federal Credit Union v New York State Department of Taxation and Finance.

As background, Hudson Valley Federal Credit Union sued the state of New York and its tax department seeking a declaration that Hudson Valley FCU and other federal credit unions are exempt from New York's mortgage recording tax.

However, lower courts ruled against Hudson Valley FCU stating that the mortgage recording tax "is not a tax on property, but a tax upon the privilege of recording a mortgage."

Video of Oral Arguments

Monday, September 10, 2012

Report on NCUA's Examination and Compliant Processes for Small CUs

NCUA's Office of the Inspector General (IG) released a report on NCUA's examination and complaint processes for small credit unions.

The report was requested by Senator Tim Johnson, Chairman of United States Senate's Committee on Banking, Housing, and Urban Affairs.

The report found that "NCUA’s examination process has clear standards and policies to conduct examinations. However, we noted inconsistencies in the manner in which NCUA carried out the procedures to implement those policies."

The IG believed that the inconsistency arose from the agency’s organizational structure consisting of five separately run regional offices with each having its own supervision manual. The IG report found that no two regional supervision manuals were the same and each region had its own customized approach to conducting risk-focused examinations.

However the report concluded that the exam inconsistencies have been addressed by the implementation of a new National Supervision Policy Manual.

Furthermore, the report concluded that NCUA examinations were completed in a timely fashion. NCUA guidelines state examiners should complete all examinations/supervision contacts within 60 calendar days from the start date.

The report found that on average NCUA completed regular FCU and joint FISCU examinations in 28 days and 32 days, respectively. Also, credit unions with CAMEL composite ratings of 1 or 2 took less time to complete the exam than credit unions with CAMEL 4 or 5 composite ratings. The IG report noted that it takes a greater time commitment to work on troubled institutions.

The IG report found that "NCUA has an adequate appeals process, which allows credit unions to question examination results."

According to logs from the five regional offices, between January 1, 2007 and December 31, 2011, each regional offices averaged six examination-related complaints annually with an average resolution time of 43 days. According to the logs, 85 percent of the complaints were decided in favor of the agency.

The report did note that there were some operational and organizational deficiencies associated with compliance monitoring, the regional determination process, the Supervisory Review Committee, and the Ombudsman position, respectively. For example, the report found that "Ombudsman position does not organizationally report directly to either the agency’s highest-ranking official or the NCUA Board, as required by the criteria which originally established the position."

Read the report.

Friday, September 7, 2012

NCUA Sues UBS Securities

The National Credit Union Administration (NCUA) is suing UBS Securities over the sale of more than $1.1 billion of mortgage-backed securities to U.S. Central Federal Credit Union (US Central) and Western Corporate Federal Credit Union (WesCorp). Both corporate credit unions subsequently failed.

The lawsuit, which was filed in Federal District Court in Kansas, alleges UBS Securities violated federal and state securities laws. NCUA argues that UBS Securities made numerous misrepresentations and omissions of material facts in the offering documents of the securities sold to the failed corporate credit unions.

The complaint also claims systemic disregard of the underwriting guidelines stated in the offering documents.

These misrepresentations caused US Central and WesCorp to believe the risk of loss was minimal.

In its complaint, NCUA requested a jury trial.

NCUA has filed five similar lawsuits against J.P. Morgan Securities, LLC, RBS Securities, Goldman Sachs, and Wachovia. In addition, the agency has settled claims worth more than $170 million with Citigroup, Deutsche Bank Securities, and HSBC.

Read the press release. Read the complaint.

Thursday, September 6, 2012

Secondary Capital

Given NCUA's recent decision to designate over 1,000 federal credit unions as low-income credit unions, the agency needs to revisit its regulations governing secondary or supplemental capital for low-income designated credit unions.

Low-income credit unions have the authority to issue secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders and the NCUSIF.

However, NCUA in a 2010 report noted its experience with the depletion of supplemental capital accounts at corporate credit unions and low-income designated credit unions had raised reservations.

NCUA acknowledged that heighten disclosures may not be sufficient to inform investors about the risk and uninsured status of the secondary capital accounts. Moreover, in an August 14, 2003 letter to Representatives Oxley, Frank, and Sherman, the agency wrote that "experience has shown that when uninsured accounts are offered to natural-person customers of a financial institution, and then the accounts suffer losses, confusion about insured status and issues of reputation risk and systemic confidence result."

NCUA needs to develop and enforce disclosure standards sufficient to inform prospective investors of the risk and uninsured status of such supplemental capital accounts. The agency also needs to put in place suitable standards to protect investors and credit union members.

Furthermore, if credit unions are allowed to offer these accounts to one another, this could increase systemic risk. Ideally, a credit union investing in secondary capital issued by a low-income credit union should be required to deduct this investment from its net worth. However, credit union net worth standards are written into law, so NCUA does not have this discretion. The next best alternative is for NCUA to put into place real and meaningful limits on the amount that credit unions may invest of their net worth in the secondary capital of a low-income credit union.

Additionally, secondary capital is not core capital and no credit union should rely entirely on secondary capital as its source of net worth. NCUA needs to specify a required minimum amount of primary capital that a low-income credit union should hold.

NCUA is well aware of these issues; but has failed to act. NCUA needs to promulgate regulations overseeing these concerns with respect to secondary capital.

Tuesday, September 4, 2012

Pension Shortfall at Commonwealth CU?

Credit Union Journal (paid subscription) is reporting that Kentucky's Commonwealth Credit Union may face a pension funding shortfall of approximately $60 million, which could put a serious dent in the net worth position of the credit union.

Commonwealth CU participates in the Kentucky Employees Retirement System (KERS), which is severely under-funded. Starting in fiscal year 2014, new Governmental Accounting Standards Board rules will require KERS to split out and pass down to all program participants their share of the under-funding.

Commonwealth CU did not respond to request for comments from Credit Union Journal.

Sunday, September 2, 2012

Minn. FCUs Can Make Unlimited Biz Loans to Lake Wobegon

In order to speed the recovery to the Gulf region affected by Hurricane Isaac, the National Credit Union Administration (NCUA) announced that all federal credit unions headquartered in Minnesota will be designated as low-income credit unions.

In making the decision to designate all Minnesota federal credit unions as low-income, NCUA Chairman Debbie Matz stated: "Most Americans consider themselves of modest means."

NCUA Chairman Matz further justified the agency's action by stating that the Mississippi River starts in Minnesota and flows into the Gulf.

NCUA stated that this action would allow Minnesota credit unions to make unlimited business loans to the residents of Lake Wobegon.

Upon hearing the news, Garrison Keillor applauded NCUA's decision by declaring all credit union business loans to Lake Wobegon are above average.


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