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News Now

CU System
Amended Ill. CU Act changes accounting mortgages marketing
NAPERVILLE, Ill. (8/17/09)--An amendment to the Illinois Credit Union Act that affects credit unions’ accounting, mortgages and marketing was signed into law by Gov. Patrick Quinn Aug. 7. It was initiated by the Illinois Credit Union League. The bill--Illinois House Bill 348--addresses issues regarding loan loss accounting, U.S. Department of Agriculture (USDA) Rural Development Housing and Community Facilities Program (HCFP) guaranteed residential mortgage loans, and marketing of services to persons eligible for membership. “This is the second bill that the governor signed this year in support of credit unions,” Keith Sias, league director of state government affairs, told News Now. “This bill has three important amendments to the Illinois Credit Union Act. I think it shows the good year we had in the legislature and in terms of support from the governor. “A previous bill that passed in January implemented a settlement of regulatory-fee litigation and immediately gave $4.5 million back to Illinois credit unions,” he continued. “So it’s been a great year for Illinois credit unions.” H.B. 348 also provides state-chartered credit unions parity with federal credit unions doing business in Illinois. H.B. 348 authorizes state-chartered credit unions to use generally accepted accounting principles (GAAP) methodology for loan loss accounting, subject to an external auditor’s determination that the period is in accordance with GAAP. The credit union must establish that a time period of fewer than five years is appropriate given the credit union’s size, business strategy, loan portfolio characteristics, and the economic environment of the areas and employers its serves. Currently, all Illinois credit unions are required to determine their historical loss rate using a period of five years. For some, this requirement distorts the forecast of current losses. Except for state-chartered credit unions, all other financial institutions, including federal credit unions, determine the appropriate balance in the allowance for loan losses in accordance with GAAP principles, as set forth in Financial Accounting Standard 5 (FAS 5). FAS 5 authorizes setting a period that may be shorter than five years. Particularly in this time of volatile market conditions, this provision is critical so that Illinois-chartered credit unions can accurately reflect the amount of losses they are likely to incur, the league said. The amended law also authorizes Illinois credit unions to provide limited services for persons eligible for membership in but not currently members of the credit union. They include (1) the issuance of negotiable checks (including travelers checks), money orders, and similar money transfer instruments (including electronic fund transfers) and (2) the ability to cash checks and money orders and receive electronic fund transfers for a fee. Illinois credit unions can now better promote membership by demonstrating a limited sampling of selected services to potential members in their existing field of membership. They also can serve unbanked persons residing in economically disadvantaged areas of Illinois. H.B. 348 also authorizes Illinois credit unions to participate in the no-down-payment HCFP programs. Prior to the amended law, Illinois credit unions were previously prohibited from making a residential real estate first mortgage loan that exceeds the estimated market value or appraised value of real estate securing the loan. As a result, Illinois credit unions could not fully participate in USDA HCFP. The purpose of HCFP is to bring home ownership opportunities to rural Americans. A common barrier to home ownership is a lack of funds for a down payment. The USDA program underwriting criteria ensure that prudent loans are generated to families that may not have a large enough down payment to avoid private mortgage insurance, but who otherwise have the credit histories and income ratios to support monthly debt service expenses.


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