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NCUA granted stay in HeritageWest lawsuit

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SALT LAKE CITY (7/22/10)--A U.S. District judge in Utah has granted a 90-day stay to the National Credit Union Administration (NCUA) in a lawsuit filed last year by 32 investors in a Castle Stone Homes real estate development project for which the now defunct HeritageWest FCU, Toole, Utah, provided financing. In his ruling Monday, U.S. District Judge Ted Stewart for the District of Utah (Central) said, "The court finds that there is no time limit for the liquidating agent to request such a stay and that upon such a request a court shall grant it as to all parties." As liquidating agent of the credit union, NCUA earlier had received permission to become a substitute for the defunct credit union in the case on March 19, a year after the suit was filed against HeritageWest. Plaintiffs opposed the stay because the request had been brought six months after NCUA assumed control of the credit union on Dec. 31, and because "it is inappropriate" because NCUA "is pursuing litigation." NCUA argued that it has not pursued litigation although a party who purchased assets has, that the Federal Credit Union Act does not provide a time limit for invoking the stay provision, and that the stay should apply to all parties although it would not object to the ruling on pending motions before the stay is imposed. Several suits have been filed over the troubled Castle Stone Homes development in the Salt Lake City area. Plaintiffs allege the development was a get-rich-quick investment scheme financed by the HeritageWest. According to the complaint filed by the investors on March 19, 2009, Castle Stone solicited investors between 2005 and 2007, promising low risk investments secured by tangible property. Castle Stone partnered with the credit union to extend a financial package for constructing houses built, marketed and sold by Castle Stone. However, 14 to 24 months after construction began, the scheme unraveled, said the complaint document. Castle Stone exhausted the construction loans on most of the homes that were only 50% to 75% completed. The credit union and Castle Home negotiated a deal to offer additional loans to investors to finish the homes without reliable appraisals showing the value of the homes supported the loan amounts. The suit claims that the developers and the credit union pressured investors into additional losses of $100,000 to $150,000 per home. The credit union foreclosed on some homes, with some borrowers repurchasing the homes at significant discounts during the short sales. NCUA has challenged the short sales in court. The credit union lost more than $29.3 million during the two years before its liquidation.

CU System briefs (07/21/2010)

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* SPRINGFIELD, Ill. (7/22/10)--Sangamon Schools CU, based in Springfield, Ill., will close its branch at the University of Illinois Springfield on July 30. The closure stems from a problem with the building's septic system. The area has a high water table, and during heavy rains the septic system would back up, Gene Taylor, president of the $45 million asset credit union, told The State Journal-Register (July 20). Members will be directed to two other branches. About 75% to 80% of members using the branch also occasionally visit two other sites ... * BEAVERTON, Ore. (7/22/10)--The Credit Union Association of Oregon (CUAO) has retained Parakletos Strategic Public Affairs and its principal, Rick Metsger, to assist its public relations services to member credit unions. Metsger is a credit union advocate who has served CUAO on two previous occasions, said CUAO. He will assist the association in conveying the credit union difference to credit union members throughout Oregon and collaborate with senior management on strategic issues. He will help member credit unions on their public relations outreach and assist association staff with weekly and monthly communications publications. Metsger is a former director of Portland Teachers CU (now OnPoint Community CU) and is a member of Mt. Hood FCU ...

Calif. newspaper MBL bill would increase CU loans to small biz

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VENTURA, Calif. (7/22/10)--Several California business associations said passage of an amendment to a bill in the U.S. Senate proposing to increase credit unions’ member business lending (MBL) would be beneficial to the state’s stressed economy, the Ventura County Star said Wednesday. The amendment would increase business lending by $638 million in Ventura County, $1.8 billion in California and $10 billion nationwide, Bob Arnould, senior vice president of government affairs for the California Credit Union League, told the newspaper. “Anything that loosens up credit and funds for a business is beneficial,” Greater Conejo Valley Chamber CEO Jill Lederer, told the paper. “It’s one of the most frequent requests for help that we get from our members.” The current lending environment is not conducive to start-up businesses, Michael Scotto, chairman of the local SCORE chapter, which offers free counseling to small businesses, told the paper. Borrowers often can’t get a bank loan unless they have substantial capital, he added. “Under-financed small businesses is the No. 1 reason for small-business failure,” Scotto told the paper. Although Ventura (Calif.) County CU is listed as a “preferred lender” by the Small Business Administration, it hasn’t done small-business lending to date. However, new CEO Joe Schroeder wants to begin offering small-business lending and accounts once the credit union has the right system and expertise available to support it, the paper said. “All you and I ever hear is how banks aren’t lending to small businesses,” he said. “If credit unions smartly get into this business and start lending to small businesses in Ventura County, it will help the businesses [and] create jobs.” Credit union business lending has grown 15% in the past year, compared with an 11% decrease in bank business lending, according to the Credit Union National Association. The bill’s amendment would raise credit union’s MBL cap to 27.5% from 12.25%.

CU CEOs stumped for predicting economys direction

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PLANO, Texas (7/22/10)--Credit union CEOs are at a standstill when it comes to registering their confidence in a national economic recovery, according to a study by Southwest Corporate FCU in Plano, Texas. Southwest Corporate’s second quarter 2010 CEO Confidence Index was nearly identical to first quarter results, indicating that credit unions may be hearing that the economy is improving, but not yet feeling it, the corporate said. The index registered 20.73, down 0.22 points from last quarter, but down 3.81 points from first-quarter 2009. Marks have ranged from a high of 47.4 during second quarter in 2004 to a low of 7.9 during first quarter of last year over the 6 1/2 years covered by the survey. “Most credit unions don’t know what to expect from the economy,” said Helen Delin, CEO at $36 million asset NAS JRB CU in New Orleans, told the corporate. “This is one year we can’t predict. Low interest rates, the corporate stabilization program, and new regulations coming out all will affect overall earnings.” “Credit unions were told that 2010 would be the most difficult year, so we’re just holding our breath, hoping to get through 2010 and see conditions improve,” she added. The quarterly Confidence Index measures economic expectations in six areas on a five-point scale, from negative to positive. Three of the six gauges in the most recent survey-- those measuring expectations six months from now for member financial condition, credit union financial condition and loan demand--also held steady, varying less than one point from last quarter. The largest movement was seen in CEOs’ expectations for share deposit growth, which fell more than seven points over last quarter. Two other gauges--those measuring the current financial conditions of members and credit unions--increased slightly by 1.48 points and 3.34 points, respectively. “The consumer continues to be wary of the weak employment climate and lost household wealth, to the point that many are deferring large ticket purchases, such as homes, cars and appliances,” said Brian Turner, director of Southwest Corporate Investment Services’ advisory service. “Unfortunately, credit unions are in the business of extending credit. So there’s little surprise that loans outstanding are down about 2% for the year- following a modest 1.2% increase in 2009.” Historically, credit unions generate most of their operating cash flow during the first quarter and loan two-thirds of that cash flow during the next three quarters, Turner said. The lack of overall loan demand could result in positive operating cash flows for the remainder of the year, he added. This would put greater pressure on investment portfolio income to recover the credit union’s revenue stream and make it necessary to manage cost of funds more tightly to retain net-interest margins. “Still, pent up loan demand could spark a short-term burst of activity later this fall-- particularly in vehicle lending,” Turner said. “This burst would not be enough, however, to create sustainable growth. The depth of the recession has had a greater impact on members than most realize, which may require credit unions to rethink their business models--perhaps over the next decade.” Turner said consumers have continued to reduce their overall debt burdens, which had reached historical highs. “Consumers learned a lesson the hard way and will be less prone to take on that level of debt again, at least for the immediate future,” he added. “This behavioral change could alter balance sheet allocation over the next few years.” Credit unions have felt some of the impact already. During the past decade, credit union vehicle loan allocation fell from 40% to 29% of loans outstanding, while first-lien mortgages increased from 25% to 39% of total loans. At the same time, gross margins tightened by about 60 basis points, and core profitability decreased more than 40%. Modest growth in consumer loans going forward would keep mortgage allocation higher and potentially alter the credit union earnings and risk profiles for some time, Turner said. “By no means do these figures portend that major difficulties lie ahead,” said Turner, who characterized his outlook as “cautiously optimistic.” “Instead, they emphasize that credit unions must position themselves for potentially dynamic changes in the future.”

Consumers buying cars feel impact of economy

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MADISON, Wis. (7/22/10)--In-market car shoppers indicate they are feeling the economy’s strong influence regarding their attitudes about financing and purchasing vehicles, according to new market research. Since auto loans--both new and used--are credit unions’ bread and butter business, credit unions can expect changes in consumers’ behavior and may have to adapt accordingly. Most in-market shoppers are planning to spend a relatively small amount of money on their next vehicle purchase and are more likely to buy used versus new, said the latest Market Intelligence survey data, by Kelley Blue Book’s Market Intelligence Group. Also, more than one-third of in-market car shoppers say they plan to pay the entire cost of their next vehicle purchase in cash and that they are not influenced by incentive offers (PR Newswire July 20). Nearly three-quarters (74%) of those surveyed said they plan to purchase a vehicle in the next six months. More consumers said they are in the market for a used car (67%) than a new car (33%). In addition, 42% of used-car shoppers and 20% of new-car shoppers said they plan to pay the entire cost of their next vehicle in cash. Most used-car shoppers (62%) plan to spend less than $15,000 on their next vehicle purchase, while half of new-car shoppers plan to spend $25,000, the survey found. The majority (82%) of used-car shoppers and more than half (51%) of new-car shoppers said that incentive offers have no effect on the timing of their next vehicle purchase. In addition, 81% of used-car shoppers and 48% of new-car shoppers said that the availability of incentives have no effect on their specific vehicle choice (make/model). “In-market car shoppers are taking a decidedly conservative approach to car buying right now, which we think can be directly attributed to low consumer confidence in the current economy,” said James Bell, executive market analyst for Kelley Blue Book’s kbb.com. “It seems people are re-assessing their financial situations and deciding to spend less, buy used and pay more often with cash,” he added. “Incentives have loosened their tight grip on the American consumer, with more people deciding to purchase what they can truly afford versus what they can get with over-extended credit lines and incentive offers on the hood from manufacturers.” Of those who intend to finance their next vehicle purchase, 0% financing was listed as the most appealing incentive offer by 30%, followed by low monthly payments at 21%. Also, women were twice as likely as men (32% of women versus 16% of men) to find low monthly payments the most appealing incentive offer. The most popular loan term was 60 months, with 42% of respondents indicating they prefer to finance over five years. Second-most popular was 36 months (21%), followed by 48 months (20%). Eleven percent preferred 72 months, and 5% cited 24 months. More than half (57%) of consumers surveyed intend to research vehicle financing options online, and 50% plan to obtain pre-approval through a bank/credit union. Only 34% said they would obtain financing at the dealership. Shoppers cited control in negotiations as the top motivator (44%) behind financing through a bank/credit union, followed by low interest rates (34%). Shoppers cited convenience (54%) as the primary motivator for financing at the dealership, followed by a low interest rate (32%). The average shopper has three vehicles in his/her consideration set, with 83% of survey respondents say they still are undecided on the make and model of their next vehicle. Younger car shoppers (age 34 and under) are more open to buying either a domestic or import brand (45%), compared with shoppers age 55-plus, who are more likely to decide either a domestic brand (39%) or an import brand (32%). Among both new- and used-car shoppers, price and durability/reliability/quality tied at 33% as the top two deciding factors when considering a vehicle to purchase. The next-highest deciding factor was past experience with the brand (12%). Shoppers said negotiating is a key part of the car-buying process, with 62% indicating they prefer negotiating to having a single set price. That number increases more among younger car buyers, as 73% of respondents age 34 and under say negotiating is a crucial part of the process, compared with 59% in the 35-54 and 55-plus age categories. Forty percent of respondents use the average transaction price (New Car Blue Book Value) as the starting point for vehicle negotiations, while 32% begin negotiating with the dealer invoice price. Only 9% of shoppers indicated they began negotiations with the manufacturer's suggested retail price. Also, consumers (38%) said that if they pay the average transaction price, they have a good deal. The data are based on a survey of 338 in-market car shoppers on Kelley Blue Book's kbb.com from June 18 through June 21.

Police say CEO threatened officer before shooting

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NEWARK, N.J. (7/22/10)--The CEO of an Atlanta, Ga., credit union threatened a police officer before being fatally shot in a New Jersey park Friday, according to a statement from the prosecutor’s office of Essex County. DeFarra “Dean” Gaymon, 48, was shot by police Friday. Gaymon had been visiting Newark, N.J., for a class reunion. He was president/CEO of Credit Union of Atlanta. The plainclothes officer had just made an unrelated arrest in the area and had responded to a complaint in the park known for illicit sex acts (The Atlanta-Journal Constitution July 21). The officer said he shot Gaymon after Gaymon tried to assault him. The officer had tried to arrest Gaymon for unlawful activity. The 29-year-old officer, who has been with the Essex County police department eight years, was placed on medical leave. The investigation is ongoing. Gaymon was married and had four children. His family wrote in a statement that Gaymon was “a peaceful, caring, friendly and law-abiding man.” Cassandra Brown, assistant vice president of marketing and business development for the $56-million-asset Credit Union of Atlanta, told the Constitution that Gaymon was “the ultimate professional.”

CU on IGood Morning AmericaI helping family save big

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NEW YORK (7/22/10)--Good Morning America Wednesday featured a segment about a savings makeover for a New Jersey family, the Shoblocks. The family received refinancing on their car loan and mortgages from a New Jersey credit union. Good Morning America correspondent Elisabeth Leamy, author of “Save Big,” took the Shoblocks to the East Windsor branch of McGraw-Hill FCU, which is based in Hightstown, N.J., so they could refinance their auto loan and their mortgage. The family will save $1,995 on their car loan over the next four years.
The family opened a low-interest credit card at the credit union and transferred their existing credit card balances. The Shoblocks will garner savings of about $16,000 with the new credit card, and their credit card debt is expected to be paid off in less than one year. The new mortgage also would save the family $55,000 over the next 10 years. Robin Shoblock had written to Leamy for help with the couple’s debts. The Shoblocks have seven children, and were struggling after Gary Shoblock lost his job and Robin had returned to school to earn a teaching degree. With Leamy’s help, the family saved a total of $108,602. “I’m speechless,” Robin Shoblock said when she learned how much McGraw-Hill could help her. “It’s just so hard to come up with ways to thank you guys for your help.” Leamy got the idea to reach out to a credit union after appearing as a guest on the Credit Union National Association’s (CUNA) Home and Family Finance radio show. CUNA provided background and put her in contact with the New Jersey Credit Union league, which worked with Leamy to find a credit union the couple could join--McGraw Hill FCU. To see the Shoblocks’ full savings makeover, use the link.