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Financial Trends in CDCUs reports economys impact

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NEW YORK (8/6/09)--The economy's impact throughout 2008 on community development credit unions (CDCUs) was mixed, according to a new report released by the National Federation of Community Development Credit Unions. CDCUs experienced overall increases in total assets and membership served, and modest growth in real estate, commercial and industrial, and member business lending. But the economy resulted in the loss of 18 CDCUs due to mergers and liquidations last year, said the federation's "Financial Trends in Community Development Credit Unions: 2008." Assets of the CDCUs grew 5.2% or $224 million on a base of $4.3 billion. This figure outpaced the 2.13% growth in their net worth, causing their aggregate net worth-to-asset ratio to decrease to 9.99% from 10.29%. Managing operating expenses continues to be an area of difficulty for many CDCUs. "It is the nature of the CDCU business that expenses exceed those of credit unions that do not primarily serve low-income populations," said federation President/CEO Cliff Rosenthal. "The driving factors include small average share and loan balances, limited payroll deductions, the typically small size of the institutions themselves, and the high level of personal service required in low-income communities," Rosenthal added. The 18 credit unions liquidated or merged represents a loss of 9% of the federation's membership--on par with the highest losses of the past 10 years. Even though they did not engage in the toxic lending that caused the economic turmoil, the impact on CDCUs with their mission of serving low-income communities has been disproportionately high, said the report. "The loss of so many CDCUs…represents a terrible blow for the underserved communities these institutions serve," said Pablo DeFilippi, federation director of membership services. "Without them, many communities will be left without access to affordable financial services, not to mention vital developmental services such as financial education and asset-building programs that these institutions have historically provided." When CDCUs merge with other CDCUs, "we have invariably witnessed the closing of branches in the lowest-income neighborhoods, further disfranchising those communities," DeFilippi said. Sustaining growth while controlling delinquencies and operating costs will continue to be a major challenge for CDCUs. Alice Greenwald, federation community development investments director, explained that the low interest-rate environment means many CDCUs are having trouble generating sufficient income from their loans and investments to offset their expenses. "We're doing all we can to help CDCUs weather the financial crisis, such as providing our members with secondary capital, which is deeply subordinated debt that can be counted as institutional net worth, but the demand from our members far exceeds our resources," Greenwald said. The federation said that $17 million in grants recently awarded to nine CDCUs by the Treasury Department's Community Development Financial Institutions Fund will help. The federation also is pressing the National Credit Union Administration to convert low-interest loans from its Community Development Revolving Loan Fund into secondary capital to help boost the CDCUs' net-worth ratios. Other key findings for 2008:
* CDCUs' membership grew 2% to 1,036,779; * Their profitability (return on average assets) decreased to 0.06% from 1.01%; * Net worth rose $9 million or 2.13% but net worth-to-assets ratios declined; * Loans rose by $208 million or 6.27% with loans to assets rising to 77.75% from 76.98% the year before; * Delinquent loans as a percentage of total loans rose to 2.88% from 2.25%, with the net charge-off rate increasing to 1.20% from 0.76%. The media ratio in 2008 was 3.79%, up from 3.43% in 2007; * Operating expenses were 5.16% of average assets, an eight basis point increase from year-end 2007; and * Shares/deposits increased by $250 million or 6.58%.

Mortgage-loan docs fraud insurance launched

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MADISON, Wis. (8/6/09)--CUNA Mutual Group is introducing the credit union industry’s first fraudulent mortgage loan documentation coverage as part of a new release of its Bond policy. This new coverage will help credit unions manage losses from increasing fraudulent acts committed by residential mortgage borrowers, CUNA Mutual said. Fraudulent Mortgage Loan Documentation (FMLD) coverage applies to material misrepresentations, through alterations by the borrowers, on certain residential mortgage lending documents used by credit unions to make lending decisions. These include verifications of income and employment, offers to purchase and/or appraisal reports. U.S. mortgage fraud is escalating, according to the Federal Bureau of Investigation (FBI). Mortgage fraud reached an all-time high in 2008, with more than 64,000 reported incidents, said a recent report by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). “When it comes to mortgage lending, even the most vigilant credit unions can be duped by their members,” said John Wallace, product executive for CUNA Mutual’s Credit Union Protection division. “Whether the loan is a first or second mortgage or a home equity line of credit, today’s technologies make it easier than ever for members to create or alter documents that credit unions rely on for their lending decisions.” Here is a typical loss scenario: A member seeking to purchase a home alters documents to represent her employment status to secure a mortgage loan beyond her means. Eight months later, after the member defaults on the payments, the credit union discovers the documents were altered fraudulently. The credit union is forced to foreclose on the property and incurs a loss. The analysis of FinCEN’s suspicious activity reports filed between 2007 and 2008 indicates a 23% increase in the number of mortgage fraud reports filed. Two categories contributed primarily to the increase:
* Misrepresentation of income, assets and/or debt; and * Forged or fraudulent documents.
Amid the current mortgage crisis, fraudulent activity that goes undetected can cause devastating losses for credit unions, said CUNA Mutual. “Even if credit unions sell their mortgages into secondary markets, they’re still at risk,” Wallace said. “When fraudulent documentation is used as the basis for the original lending decision, buyers such as Fannie Mae or Freddie Mac can require the credit union to repurchase the loan and absorb the loss.” A robust mortgage loan underwriting process is the most effective way to avoid fraudulent loans altogether, Wallace said. CUNA Mutual’s risk management group recommends taking several steps to help avoid such losses:
* Request verification of employment directly from the borrower’s reported employer(s); * Request verification of deposit directly from the borrower’s reported financial institution(s); * Request tax history directly from the Internal Revenue Service using Form 4506 or 4506-T (two-year history for self-employed borrowers); and * Secure current credit scores from a third-party credit reporting agency.
FMLD is part of CUNA Mutual’s Bond program, a key component of the Credit Union Protection insurance and risk management portfolio designed exclusively for credit unions to manage their financial, operational and personal risk exposures. In addition to the Bond, other Credit Union Protection policies include:
* Plastic Card; * Management & Professional Liability; * Property & Business Liability; * Business Auto; and * Plus, additional policies.
The Bond program is underwritten by CUMIS Insurance Society, Inc., a company of CUNA Mutual Group. More information is available at the link.

CEOs letter to editor discusses interchange issue

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CARTERET, N.J. (8/6/09)--A credit union CEO's letter to the editor of a New Jersey newspaper outlines why credit unions oppose changes that would allow merchants to renegotiate changes in interchange fees with financial institutions. In the letter, published Wednesday in, MidState FCU President/CEO Tracy Sussman responded to an earlier letter on the fees. MidState FCU is a $16 million asset credit union based in Carteret, N.J. "If merchants have their way and succeed in changing the current terms of interchange fees, we may no longer be able to provide this convenience (credit and debit cards) for our members. Interchange fees cover the costs associated with credit and debit cards--things like delinquent payments, fraud, and those who just plain default on their credit cards," Sussman wrote. She noted that the credit union assumes the risk so merchants can accept credit cards. Merchants get paid quickly--often the same day--while the credit union must wait up to 30 days to be paid for the same transaction. "Interchange fees are just part of the cost of doing business, much like postage and advertising, and they are certainly less costly than returned check charges. What the merchants aren't saying is that the change in the current structure will not benefit the consumer, but will benefit merchants." She noted the driving force behind the merchants are big box stores, not local "mom and pop" shops. "While it is true the merchants are paying more in interchange, it is not due to raised fees, but simply volume," said Sussman. Two bills in Congress on the issue have not seen action. H.R. 2695, the "Credit Card Fair Fee Act of 2009" offered by Reps. John Conyers Jr. (D-Mich.) and Bill Shuster (R-Pa.), would permit merchants to negotiate fees with financial institutions via an antitrust exemption. Another bill, S. 1212, The Credit Card Fair Fee Act introduced in June by Sen. Richard Durbin (D-Ill.), would establish a panel of three Electronic Payment System judges to intervene in fee disputes between card service providers and merchants using the system. The Credit Union National Association (CUNA) is monitoring progress of the bills. CUNA opposes legislation that would affect interchange fees because it believes such action would adversely limit consumer options, competition and technological innovation. CUNA says that interchange fees allow business costs, including the risk of consumer nonpayment, to be shared by the payments participants. Discussions regarding what value should be placed on the use of electronic payments should be within the purview of the industry participants. CUNA has also recommended that legislators wait for the results of a Government Accountability Office review of interchange fees before acting on any interchange legislation. To review the letter to the editor, use the link.

CU System briefs (08/05/2009)

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* DALLAS (8/6/09)--Southwest Corporate FCU is lowering the registration costs for credit unions attending this year's 32nd annual Economic Forum Oct. 27-28 in Dallas. "We understand this is a challenging year for many credit unions, so Southwest Corporate is reducing the Economic Forum registration fee to make it easier for credit unions to attend," said Kathy Garner, the corporate's executive vice president of member services and business development. The early bird registration fee is $375, down from $425 charged for last year's event. Click the link for more information … * SACRAMENTO, Calif. (8/6/09)--The Golden 1 CU announced Monday it will offer Federal Housing Administration (FHA) loans for the first time (The Sacramento Bee Aug. 4). The loans, often used by first-time homebuyers, require a 3.5% down payment. During May, FHA loans financed 40.9% of all home purchases in Sacramento County, according to research firm MDA DataQuick. The Golden 1 CU, based in Sacramento, has more than $6.9 billion assets … * HARAHAN, La. (8/6/09)--Louisiana credit unions broke their record by raising more than $111,900 for the Credit Union Legislation Action Committee (CULAC) to date, with more than $25,900 raised during the Louisiana Credit Union League's 75th Annual Meeting and Convention July 30-Aug. 1 in New Orleans. Nine credit union chapters competed to raise the funds. The Alexandria Credit Union Chapter received the "CULAC Challenge Champion award for raising 735% of its goal. West Orleans Chapter raised the most money--$21,900. Susan Leake, president/CEO of La Capitol FCU, Baton Rouge, was the highest individual contributor. Eight of the league's nine chapters, plus league staff, surpassed their 2009 CULAC goal, said the league …

CUs must do more than marketing to reach Hispanics

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MADISON, Wis. (8/6/09)--Roughly 20% of U.S. credit unions already have or are planning Hispanic outreach programs, according to the Credit Union National Association (CUNA) and its new Hispanic outreach partner, Coopera Consulting. In 2006, credit unions spent $37 million in marketing to Hispanics. But not all of that money may have been effectively spent, because credit unions who want to reach Hispanic consumers need to do more than just translate their slogans and marketing materials from English to Spanish, according to Warren Morrow, Coopera Consulting CEO. During a briefing of CUNA staff about its partnership with Coopera, Morrow provided examples of how Coopera helps credit unions that are ready to serve Hispanics to culturally translate their marketing messages, instead of literally translating them. Credit unions’ Hispanic outreach efforts should engage in more than just translations, he said. To help credit unions more effectively reach Hispanics--which present a significant growth opportunity for the credit union movement--CUNA is working with Coopera to develop products and services credit unions can use for Hispanic outreach, including:
* Assessments; * Training; * Consulting; * Translations and * Hispanic Consumer Products.
Credit unions in today’s economy face challenges like declining membership growth, increased regulatory scrutiny, aging memberships, growth of the fringe financial service providers and corporate challenges--which can divert their attention from the future. But it’s important for them to seek and take advantage of new opportunities--such as reaching Hispanics--to find “new vital members and employees,” Morrow said. Hispanics are important to credit unions because they are the largest, fastest-growing, youngest and most underserved population in the U.S. By 2050, the Hispanic population is expected to reach 103 million. Hispanics also represent about half of people entering the U.S. work force and have a purchasing power of nearly $1 trillion, Morrow said. Though Hispanics represent a significant part of the U.S. workforce, they are financially underserved. Only about half have traditional relationships with mainstream financial institutions--compared with about seven of eight individuals in the U.S. general population. Many Hispanics use fringe service providers such as check cashers, remittance shops and pawn shops--which charge high fees, Morrow said. Helping Hispanics not only fulfills the credit union philosophy--it also presents credit unions with revenue and growth opportunities. Financially healthy members can lead to financially healthy credit unions and leagues, Morrow added. CUNA recently created a strategic partnership with Coopera, a subsidiary of the Iowa Credit Union League, to provide products and services to help credit unions serve the Hispanic market. For more information, use the link.

Louisiana pro volunteer marketing awards announced

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HARAHAN, La. (8/6/09)--The Louisiana Credit Union League has announced the
Glen Beard, Louisiana Credit Union League board chairman, presented Kathi Gill, president/CEO of Neighbors FCU in Baton Rouge, with the league’s Professional of the Year Award.
Kenneth Villemeratte (left) received the Louisiana Credit Union League’s Volunteer of the Year award. Glen Beard, league board chairman, presented him the award at the league’s annual convention last week. (Photos provided by the Louisiana Credit Union League)
recipients of its credit union professional, volunteer and marketing awards. The awards were presented at the league’s annual meeting and convention last week. Kathi Gill, president/CEO of Neighbors FCU in Baton Rouge, received the Professional of the Year Award. Kenneth Villemeratte with Lafayette Schools FCU was named “Volunteer of the Year.” Villemeratte has volunteered at the credit union for 18 years. The league also recognized six credit unions with Excellence in Marketing Awards for outstanding credit union marketing and communications efforts. In the $20 million assets and under category, winners included:
* Barton Plant FCU, Boutte, Best Newsletter; * CUSA FCU, Covington, Best Annual Report; and * St. Jules CU, Lafayette, Best Website.
Winners in the $20 million to $60 million asset category were Access of Louisiana FCU, Westlake, Best Newsletter and Best Annual Report; and Keypoint FCU, Baton Rouge, Best Website. Awards in the $60 million asset category were given to CSE FCU, Lake Charles, Best Newsletter and Best Annual Report; and Louisiana FCU, LaPlace, Best Website.

Western CUNA Management School honors graduates

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CLAREMONT, Calif. (8/6/09)--Four students graduated with “High Honors” and were inducted into the Academic Hall of Fame, while nine others graduated with “Honors” at the 48th session of Western CUNA Management School (WCMS) held July 12-23 at Pomona College in Claremont, Calif. Of 330 students attending this year, 78 were first-year students, 125 were second year and 127 were third year. During a three-year period, students have five opportunities to earn academic honors. Honors and High Honors are awarded to the highest achievers on both examinations taken at the end of each school year and the analysis of each of their two projects. To be inducted into the Academic Hall of Fame, students must receive honors in five out of five categories. Students earning High Honors were:
* Michael Gay, California; * Michael George, California; * Ryan Olsen, Washington; and * Karen Zerger, Oregon.
This year’s Honor students were:
* Jana Ayres, Washington; * Richard Dugan, California; * Jennifer Evans Thompson, Washington; * Krista Ferndelli, Colorado; * Brandy Fielding, California; * Maile Gushiken, Hawaii; * Jennifer Kato, California; * Steve Pratt, Utah; and * Daryl Rother, Washington.
This year’s Charles M. Clark Memorial Award went to Wayne K. Jorgensen of America First CU, Riverdale, Utah. Each year, the senior class nominates one student who best represents high moral character, leadership, credit union dedication and academic achievement to receive this award.
Click to view larger image Brett Martinez, president/CEO of Redwood CU in Santa Rosa, Calif., received the James D. Likens Alumni Recognition Award at the 48th session of Western CUNA Management School, July 12-23 in Claremont, Calif. (Photo provided by the California Credit Union League)
The third-year graduating class donated $56,200 to WCMS, in addition to $12,175 raised from this year’s silent and live auctions. Brett Martinez, CEO of Redwood CU in Santa Rosa, Calif., and current California Credit Union League chairman, was named the 19th recipient of the James D. Likens Alumni Recognition Award, founded by the Alumni Association of Western CUNA Management School. Martinez was recognized for his credit union career and commitment to the Children’s Miracle Network’s CU for Kids program. Troy Stang, president/CEO of the Credit Union Association of Oregon, delivered the commencement address at the July 23 graduation ceremony. “Our management skills are being tested,” he said. “We all have an important lesson to learn, and that is to respect ourselves. We have to also remember, it’s not our abilities, but our choices in life that matter.” This year’s students were from 17 states.