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Loan growth, Net Worth, Membership Are 2Q Story

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ALEXANDRIA, Va. (8/30/13)--Loan growth, net worth, and membership are the biggest stories told in the National Credit Union Administration's second-quarter data, according to the agency. The data show federally insured credit unions (FICU) saw brisk loan growth, their highest net worth ratio since 2008 and record membership levels.

NCUA Chair Debbie Matz, releasing the second-quarter report this morning, said, "The increases in lending, net worth and membership are especially positive signs.

"The brisk loan growth shows that federally insured credit unions are meeting the needs of more borrowers and putting their assets to productive use. The net worth ratio rose to 10.5%, its highest level since 2008. Credit union membership continues to reach a new milestone each quarter."

Loans were up 2.3% in the second quarter, and 5.5% in the last four quarters, which the NCUA said is the strongest four-quarter growth since the start of 2009.

"Although the industry is performing well overall, smaller credit unions continue to face challenges with making loans, generating earnings and attracting members," Matz added. "NCUA is committed to providing assistance and support to ensure the viability of small credit unions so they can continue to serve local communities."

Regarding lending by FICUs, the NCUA highlighted the following:
  • First mortgage real estate loans rose to $253.8 billion, up 2.1% for the quarter and 5.6% year-over-year;
  • New auto loans expanded to $66.4 billion, up 2.8% for the quarter and 10.7% for the last four quarters;
  • Used auto loans rose to $121.3 billion, up 3.7% for the quarter and 9.3% for the year ending June 3; and
  • Net member business loan balances grew to $43.5 billion, up 2.3% for the quarter and 8.3% for the prior 12 months.
Membership was another big story told by the second quarter numbers. Reaching a record high and growing by 560,670, credit union membership reaches 95.2 million, according to the NCUA's tabulations.

The NCUA also reported a second quarter earnings increase, a positive jump it attributed in large to increases in fee income and declines in loan-loss provisions. FICUs in the second quarter had a net income of more than $2.2 billion. The industry's return on average assets ratio stood at an annualized 85 basis points (bp) points at the end of the second quarter, which the agency said showed progress "inching closer to pre-crisis norms."

The delinquency ratio of FICUs for the second quarter of 2013 was 1.04%; the industry's net charge-off ratio declined to a reported annualized 58 bps:  Since the second quarter of 2012, the net charge-off ratio has declined by 17 bps.

Use the resource link to read more of the NCUA's report.

NEW: CUNA Seeks CU Comment On Revised QRM Rule

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WASHINGTON (8/30/13, UPDATED 4:12 p.m. ET)--The Credit Union National Association is encouraging interested credit unions to comment on a joint revised proposal on credit risk retention  issued this week by federal banking agencies. One aspect of the proposal is key for credit unions--a proposed definition of the term "qualified residential mortgage (QRM)" for purposes of creating an exemption from the risk retention requirements under the Dodd-Frank Act.
 
While few credit unions likely would be covered as securitizers of asset-backed securities, the proposal is important to credit unions because the secondary market will likely conform to qualified mortgage (QM) and QRM standards, CUNA noted in its request for comment.
 
CUNA is also concerned that examiners may insist credit unions confine their mortgage loans to QMs and QRMs.
 
Under the proposed rule, the definition of QRM would be revised to be the same as the Consumer Financial Protection Bureau's definition of a QM. This is a development that CUNA had urged.
 
Contrary to the original proposal, there would be no loan-to-value, down payment, credit history, mortgage servicing, or appraisal requirements for a mortgage loan to qualify as a QRM. However, home equity lines of credit, reverse mortgages, mortgages secured by timeshares and temporary or "bridge" loans of 12 months or less would not qualify for QRM status.
 
The proposed rule also differs from the original proposal as QRMs would now include any closed-end loan secured by a dwelling, not just principal dwellings secured by first liens that are securitized.  Subordinate liens would also be eligible for QRM status, as long as they meet the CFPB's definition of QM and are securitized.
 
Importantly, CUNA noted that as part of the re-proposed rule, the agencies are seeking comment on a much more stringent alternative to the proposed QRM definition, termed "QM-Plus" that does address underwriting criteria, such as a 30% down payment.
 
Comments are due to the agencies on the proposed rule by Oct. 30. CUNA, working with its Consumer Protection Subcommittee,
the Housing Finance Reform Task Force on related policy issues, the CUNA Lending Council, the state credit union leagues and credit unions, will be filing a strong comment letter with the agencies to argue against the alternative QM-Plus definition for QRMs.
 
Use the resource link for the CUNA Comment Call on the proposed plan.

Denver Post Op-Ed: CUs Deserve To Keep Their Non-profit Tax Status

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DENVER (8/30/13)--Credit unions deserve to keep their non-profit tax status because consumers "unequivocally benefit" from their presence in the financial services marketplace, said a Colorado credit union CEO in a Wednesday op-ed in The Denver Post.

"The banking industry pretends that banks and credit unions are essentially the same, since they provide similar services, like checking and savings accounts, car and small-business loans, and mortgages," wrote C. Alan Peppers, president/CEO of Westerra CU in Denver.

"But the two are very different," he added. "Banks, like other corporations, are owned by shareholders and managed to produce a profit. Credit unions, on the other hand, are member-owned cooperatives. They have a long history of providing financial services primarily to middle- and working-class families.

"Credit unions are run democratically, serving the needs of their members exclusively," Peppers wrote. "They don't set out to generate profits. Instead, they return their earnings to their members in the form of better rates on deposits, lower rates on loans, and reduced fees."

As an example, Colorado credit unions offer four-year used-car loans at an average 3.2% interest rate, compared with an average of 5.25% charged by Colorado banks, Peppers said. With a $15,000 car loan, that equates to nearly $2,000 in savings at a credit union during the life of the loan, he explained.

"Coloradans unequivocally benefit from the presence of non-profit credit unions in the financial services marketplace. Forcing them to pay new taxes would rob consumers of millions of dollars in benefits--and consequently hamstring our state's economy," Peppers concluded.

Credit unions and their members nationwide are engaged in a "Don't Tax My Credit Union" campaign urging Congress not to eliminate credit unions' tax exemption for corporate income. For more information, use the link.

NEW: NCUA Files RMBS Suit Vs. Morgan Stanley

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ALEXANDRIA, Va. (8/30/13, UPDATED 12:04 p.m. ET)--The National Credit Union Administration announced today it has filed a new residential mortgage-backed securities (RMBS) case--this one against Morgan Stanley and alleging such things as "systemic disregard of underwriting standards."

"Firms like Morgan Stanley sold securities that turned out to be faulty, triggering a crisis in the credit union industry that has been extremely expensive to contain and repair, and credit unions are still paying the tab," said NCUA Chair Debbie Matz announcing the suit. "All the credit unions we supervise and insure are sharing this burden. The people who are accountable, those who precipitated this crisis, should be required to shoulder that burden, as well."
 
This newest case is in the U.S.  District Court for the District of Kansas. The defendants are Morgan Stanley & Co., Inc., Morgan Stanley ABS Capital I Inc., Morgan Stanley Capital I Inc., and Saxon Asset Securities Co.

It alleges violations of federal and state securities laws in the sale of more than $566 million in mortgage-backed securities to the U.S. Central and WesCorp corporate credit unions, accoding to the NCUA.
 
Although filed Aug. 16, the NCUA announcement of a lawsuit filing comes just three days after the regulator received some good news from the U.S. 10th Circuit Court of Appeals.
 
That court overturned a lower court ruling that claimed the NCUA's RMBS case against RBS Securities was time-barred and should be dismissed.  By overturning that ruling, the appeals court enabled the regulator to proceed with its lawsuits against 12 firms, including RBS Securities, which claim losses stemming from residential mortgage-backed securities sold to corporate credit unions.
 
At the time of that decision, NCUA Chair Debbie Matz said the agency would "continue to pursue our claims against firms that sold faulty mortgage-backed securities to corporate credit unions. As liquidating agent for the corporate credit unions, NCUA has a duty to maximize recoveries from responsible parties in order to limit losses to federally insured credit unions."
 
As noted, the NCUA has filed the RMBS lawsuit as the liquidating agent for the corporate credit unions. Its lawsuits claim that the brokers' offering documents for the RMBS had material misrepresentations about the underlying loans that backed the securities.
 
NCUA has filed lawsuits against Barclays Capital, Credit Suisse, Goldman Sachs, J.P. Morgan Securities, RBS Securities, UBS Securities, Wachovia, Washington Mutual, and Bear Stearns alleging violations of federal and state securities laws in the sale of mortgage-backed securities to the five corporate credit unions.
 
Also, the NCUA has settled similar suits with Bank of America, Citigroup, Deutsche Bank Securities, and HSBC, bringing in more than $335 million in funds that were lost due to the corporate credit union investments. The NCUA has said that funds recovered through these cases will be used to help reduce the amount of future corporate stabilization assessments on credit unions.

FDIC-insured Institutions Earned $42.2 Billion In 2013 2Q

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ARLINGTON, Va. (8/30/13)--Commercial bank and savings institution second quarter income jumped 22.6%--up to $42.2 billion, reported the Federal Deposit Insurance Corp. (FDIC) of its insured institutions. That represented a $7.8 billion increase from the $34.4 billion in profits that the industry reported a year earlier.
 
The FDIC said this is the 16th consecutive quarter that earnings have registered a year-over-year increase.
 
However, FDIC Chairman Martin Gruenberg said industry revenue growth remains weak, reflecting narrow margins and modest loan growth. "And," he added, "the current interest rate environment creates an incentive for institutions to reach for yield, which is a matter of ongoing supervisory attention."
 
"Nonetheless, overall these results show a continuation of the recovery in the banking industry," he said.

It's Almost September: Is Your CU Prepared?

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WASHINGTON (8/30/13)--As News Now has been reminding over the last month, September is National Preparedness Month. The Federal Emergency Management Agency (FEMA) is inviting all interested parties to join a collaborative "National Preparedness Community" to fulfill a "shared responsibility to prepare."

FEMA is also offering a downloadable 2013 National Preparedness Month Toolkit.

Those who join FEMA's virtual preparedness community (see resource link) also:
  • Get access to preparedness resources;
  • Can promote their national preparedness event on the calendar;
  • Can connect and build relationships with emergency management personnel; and
  • Can share and compare preparedness plans.
Credit unions should also be aware of three webinars to help them prepare that are being offered in September by Agility Recovery, the disaster preparedness business continuity service provider for CUNA Strategic Services (News Now Aug. 12). Agility Recovery is partnering with the U.S. Small Business Administration to offer the preparedness sessions.  
 
Each of the free webinars all begin at 2 p.m (ET) and topics include:
  • Protecting Your Organization By Preparing Your Employees, Sept. 11;
  • The NEW 10 Steps to Preparedness: Lessons From the Past, Sept. 18;  and
  • Crisis Communications For Any Organization, Sept. 25.
Agility Recovery also has prepared a free "Crisis Communications Planning Checklist for Credit Unions," available to download from its website. Use the third resource link to download a two-page checklist, which provides recommendations for developing a communications plan, as well as what to do during the crisis and after the crisis. 

Agility has said the checklist can help credit unions assess their current strategy "and put into place some simple steps that will enhance your capability to communicate before, during and after the next disaster."

FHFA Reports 'Sharp' July Mortgage Rate Jump

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WASHINGTON (8/30/13)--The Federal Housing Finance Agency (FHFA) reported Thursday that mortgage interest rates rose sharply in July over the previous month's rates.
 
Continuing an upward trend, the contract rate on the composite of all mortgage loans was 4%, up from 3.55% in June.
 
Interest rates are typically locked in 30-45 days before a loan is closed. Consequently, FHFA July data reflect market rates from mid-to-late June. The effective interest rate was 4.12%, up 45 basis points (bp) from 3.67% in June. The effective interest rate accounts for the addition of initial fees and charges over the life of the mortgage.
 
FHFA's interest rate survey shows the average interest rate on conventional, 30-year, fixed-rate mortgages of $417,000 or less was 4.27% in July, an increase of 51 bps. The average loan amount for all loans was $278,200 in July down $4,200 from $282,400 in June.
 
FHFA will release August index values Sept. 26.
 
Use the resource link to find the complete contract rate series.