An online survey by Credit Union Times found that a large majority of the respondents believe that taxi medallion loans will result in a loss to the National Credit Union Share Insurance Fund (NCUSIF).
Seventy-three percent of the respondents believe that taxi medallion loans will result in a loss to the NCUSIF, while 27 percent of the respondents don't believe these loans will result in a loss to the NCUSIF.
However, that 27 percent may want to reconsider their position based upon recent research from HVM Capital.
HVM Capital found that some credit unions, as well as other lenders, may have actually financed some medallion sales at above-market prices -- in order to inflate the value of their current holdings at higher prices.
According to HVM Capital, these lenders provided 100 percent financing for taxi medallions and refused to finance taxi medallions that sold for much lower prices. The report specifically identifies Montauk Credit Union and LOMTO Federal Credit Union as providing 100 percent financing.
Providing 100 percent financing for collateral that is falling in value does not appear to be a sound banking practice. Moreover, unless these credit unions received a waiver from the maximum loan-to-value requirement, then these credit unions are in violation of the National Credit Union Administration's Member Business Loan requirement.
This report was written before Montauk Credit Union was seized in September and placed into conservatorship. While I don't know the ultimate fate for Montauk, the odds are much higher today that three months ago that the credit union will end up in receivership.
Also, it is likely that the pain from taxi medallion loans will spread to other credit unions, as many credit unions have bought participations in these loans.
Read the research.
When a financial institution gets into trouble, leadership becomes desperate to "fix it". And desperate people do desperate things. Clearly that's the case in this situation. Banking regulators don't wait around to take over a failing bank, they act quickly. NCUA would be well served to pay attention to how it's done on the other side. They won't be treated as grown-ups by the Treasury until they act like grown ups.
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