A paper published in Applied Economics Letters concluded that credit unions did not provide consumers with liquidity during the recent financial crisis.
The paper, Credit Unions during the Crisis: Did They Provide Liquidity?, examined whether credit unions provided liquidity to individuals in the form of home equity line of credit (HELOC) during financial crisis of 2008 in areas experiencing decline in home prices.
The study justified using HELOCs as a measure of consumer liquidity, because HELOCs can be used for any purpose. The paper did not examine credit card loans, which can be used for the same purpose; because credit unions are fringe players in the credit card marketplace.
The authors, Pankaj Maskara & Florence Neymotin, employed data from the Consumer Finance Monthly survey and limited their analysis to the time period between April 12, 2007 and March 13, 2013.
The paper controlled for selection bias. In other words, the decision regarding a HELOC could have been the choice of a credit union member, not the action of a credit union.
The authors found that after controlling for selection bias credit unions during the financial crisis did not extend HELOCs any more than other depository institutions in areas experiencing housing price declines.
However, the results from the paper are limited to HELOCs offered by credit unions.
Click here to go to Applied Economics Letters (there is a charge to download the paper).
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This looks like another report from economists who don't know the real world. First of all, banks didn't do anything either with HELOCs. Secondly, and more importantly, people were walking away from their homes. How could a FI offer a HELOC when a house is being foreclosed? It makes no sense. Our largest losses were real estate. The last thing we would have done is grant them a HELOC while they were packing up and leaving in the middle of the night. Time for these eggheads to go back to school. Aren't you retired, Leggett?
ReplyDeleteSo they only examined a type of loan secured by collateral which caused the worst financial crisis since the Great Depression? I would be very interested to see how the other loan types stacked up as banks stopped lending across the board.
ReplyDeleteI suppose the premise here is Credit Unions should have stepped up to take second positions on first mortgages which should have never been originated by banks in the first place?
Valid study with no practical application.
I agree. It would be of value to see how other types of loans performed during the financial crisis.
DeleteAlso, the pull back on HELOCs is to be expected given the drop in home prices in the hardest hit areas of the country.
So once again you post a negative article just to post it. There is nothing of value in this report. You just can't stop bashing credit unions. Figures you used to be more with the bankers than credit unions. It shows in everything you write. Nothing you write holds any weight with anyone I know....we all laugh at you.
ReplyDeleteEveryone needs to take a deep breath. Keith publishes facts and lets you interpret it. If you as a CU professional did everything you could to help members during the crisis, don't get all worked up. Nothing in the article said CUs did the wrong thing, only that we did not extend additional HELOCs. How you interpret that fact is really up to you.
ReplyDelete