Wednesday, June 10, 2015

Quorum FCU Restructures Timeshare Loan Program to Avoid Regulatory Limits

According to Quorum Federal Credit Union's 2014 Annual Report, the Purchase, NY-based credit union restructured its vacation ownership or timeshare loan program to circumvent regulatory limits.

As I previously reported, Quorum Federal Credit Union, beginning in 2009, entered into financing agreements with several vacation ownership companies to provide loans for the purchase of timeshares and rapidly grew its timeshare loan portfolio. (Read here and here)

According to Note 4, the National Credit Union Administration (NCUA) directed the credit union to reduce its exposure to vacation ownership loans.
In 2014, the NCUA directed the Credit Union to reduce their vacation ownership loan portfolio by June 30, 2015. The limitation applied to the Credit Union’s holdings is a result of the NCUA determining that these loans meet the definition of an eligible obligation as opposed to indirect loans. The aggregate limit for eligible obligation is 5% of unimpaired capital and surplus. As of December 31, 2014, if the Credit Union were required to reduce its holdings, approximately $91,842 of vacation ownership loans would need to be sold. As a result, this amount of loans has been classified as loans held for sale in the consolidated statement of financial condition at December 31, 2014.

So, outstanding vacation ownership loans fell from $135,413,000 at the end of 2013 to $43,526,000 at the end of 2014.

However, Note 4 further points out that the credit union made changes to its vacation ownership loan program so that it qualifies as indirect loans and thus not subject to any specific regulatory limits.
During 2015, the Credit Union proposed certain changes to the vacation ownership loan program and the NCUA has acknowledged that the proposed changes to the program will qualify future loans as indirect loans. There is no regulatory limit specific to indirect loans, and therefore the Credit Union anticipates continuing the vacation ownership loan program with such loans qualifying as indirect loans. Similar to other loan types, these loans will follow the concentration guidelines adopted by the Board of Directors and will be subjected to examination by the NCUA.


  1. A few comments: I do not believe the loans will be able to be retroactively classified as indirect, so they still will have to sell them. Because the report is written in thousands, they will need to liquidate $91 million in vacation ownership loans. Report says they purchase at a discount of 65%-90% of face amount of loan. Not sure what discount will be applied when they sell seeing that the market is not liquid or transparent and they will be unloading $91 million at the same time. Good luck to them!

  2. Yikes and $120M of what appears to be medallion loans bought WITHOUT recourse.
    So much for FOM restrictions!
    This cu has $255M in non member loans..and not exactly your "consumer, plain vanilla stuff"...and re-classifying to boot!
    Good for them.
    Take advantage of what you can get away with.



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