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CURRENT Newsletter | 15 May 2014

May 15, 2014 by Lewis Wood

News and Information for and about Virginia's Credit Union System

Headline News

News About Credit Unions

Compliance/Regulatory Affairs News

Financial Services/Marketplace News

News From Credit Unions

Chapter News

Marketing News

Human Resource Management

Headline News

Senate Banking Approves Johnson-Crapo Housing Finance Reform Bill

The Senate Banking Committee voted this morning to approve its Housing Finance Reform and Taxpayer Protection Act of 2014 (S. 1217). The vote was 13-9. Sen. Mike Crapo (R-Idaho), the committee's ranking member, has called housing reform "the most significant piece of unfinished business from the 2008 financial crisis."

Credit Union National Association President/CEO Bill Cheney, following the vote, said, "It's critical that government-sponsored enterprise reform ensures equal and competitive access for credit unions and other small lenders to the housing finance market--and avoids further concentration of the primary and secondary mortgage markets to Wall Street and the largest of lenders. This legislation takes significant steps toward accomplishing both." Whether the bill has the momentum to reach a floor vote remains to be seen, say those who have been following the bill's progress.

[READ MORE]

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What Lack of GSE Reform Means for Future of Housing Finance

So, if the prospects for a congressional overhaul of the housing finance structure are as dim as some believe, what does the lack of reform mean for the future of mortgage lending? Here are three critical takeaways about what the lack of housing finance reform coming from Capitol Hill means for stakeholders over the next several years.

Incremental Changes at FHFA

By far, the clearest result of legislative efforts subsiding will be a renewed focus on the work of the Federal Housing Finance Agency, Fannie and Freddie's conservator now under the direction of former Democratic Rep. Mel Watt. After keeping his powder dry since taking office in January, Watt made his first major speech on Tuesday when the agency released a new strategic plan. His remarks signaled a shift in the FHFA's objectives away from shrinking Fannie and Freddie to ensuring a robust and stable mortgage market under the current framework.

Dwindling Capital

Even as FHFA forges ahead with changes at the GSEs, the current design of the conservatorships keeps Fannie and Freddie in a somewhat precarious position. The most obvious example of that, observers say, is the two mortgage giants hold just a narrow capital buffer, which by 2018 is set to dwindle down to zero essentially under the Treasury Department's most recent stock purchase agreement. "The lack of capital is a problem, though as long as the firms are supported by taxpayers, the risk goes to the taxpayers," said Phillip Swagel, a professor at the University of Maryland. "That risk is reduced by risk sharing, but the scale would be much smaller than under the Johnson-Crapo approach." Recent stress test results for the GSEs found that the mortgage giants could suffer losses of between $80 billion and $90 billion in a downturn, requiring as much as $190 billion in support from Treasury.

Ongoing Uncertainty

More broadly, leaving the status quo in place would continue a pervasive sense of uncertainty in the financial services industry surrounding the housing finance system. The conservatorships were intended to serve as a "time out" for the GSEs, but have instead put the market, the mortgage giants and their employees in a perpetual state of limbo.

(American Banker Online, May 15)

[RELATED: FHFA Won't Reduce Fannie, Freddie Loan Limits]

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CUNA: Lawmakers' RBC Letter Effort Had 'Outstanding' CU, League Support; 10 Virginian Sign on to Letter!

Credit Union National Association President/CEO Bill Cheney said Tuesday that the hundreds of House members' signatures collected on a letter of concern over the National Credit Union Administration's proposed risk-based capital (RBC) regulation--and the short timeframe in which they were collected--could never have been accomplished without the outstanding efforts of credit unions and their state leagues.

As reported Tuesday in News Now , a bipartisan collection of more than 320 House lawmakers joined Reps. Peter King (R-N.Y.) and Gregory Meeks (D-N.Y.) to urge the NCUA to ensure its RBC proposal does not adversely affect small businesses and credit union members. We're proud to report that the following Virginians are on the letter: Reps. Connolly, Rigell, Scott, Hurt, Forbes, Goodlatte, Moran, Griffith, Wolf, and Wittman.

[READ MORE]

NOTE: Be sure to thank our lawmakers for taking a stand on our behalf. If your Congressman has signed on, you can go to www.mycuisme.com, click the "Federal Issues" (left hand navigation menu), then seen the "Ask Congress to Contact the NCUA" alert. You can rework the verbiage and send a thank-you note!

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Risk Weighting Called Crippling

The NCUA's 198-page risk-based capital proposal, which amends seven sections of the Federal Credit Union Act, was introduced Jan. 23 with comments due from interested parties no later than May 28. The agency also will host listening sessions on June 26 in Los Angeles, July 10 in Chicago and July 17 in Alexandria, Va. According to the NCUA video on the proposal, the new rule will only affect those credit unions considered “complex,” defined as the roughly 2,200 institutions with more than $50 million in assets out of a total of about 6,600 credit unions.

Of that number, about 200 credit unions will see a change in their PCA category, according to JeanMarie Komyathy, NCUA's director of risk management. Those are the credit unions that will have to make choices to either raise more capital or shed some of the long-term assets the agency considers risky to their balance sheets, she added. The risk-based capital ratio for credit unions currently stands at 7% overall for credit unions. This compares to a 5% ratio for banks as dictated by Basel III, the international banking guidelines that U.S. banks adopted in 2013.

More disturbing to many credit unions, however, are the risk ratings for various long-term assets, including member business loans, certain investments, CUSOs and mortgages, which some larger credit unions have in abundance. Those risk weights would increase based on the percentage of the portfolio that they occupy.

[READ MORE]

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News About Credit Unions

Nominations Open for 2015 Wegner Awards

Credit union supporters are encouraged to nominate individuals and organizations for the Herb Wegner Memorial Awards to be presented by the National Credit Union Foundation (NCUF). Winners will be honored at NCUF’s annual awards dinner on March 9, 2015 in conjunction with the Credit Union National Association (CUNA) Governmental Affairs Conference (GAC) in Washington, D.C.

[Click to Learn More]

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CUs' Market Share of Credit Cards Continues to Rise

Credit card balances, credit unions' market share, and transaction volume are all on the rise. Outstanding credit card loan balances at credit unions and credit union market share have consistently increased throughout the past five years. In 2013, outstanding credit card balances increased 7.5% annually, marking the highest growth in five years, notes an article from creditunions.com. The average credit card interest rate at credit unions was 10.56% as of December 2013.

This is significantly lower than the national bank average (15.06%) and comparable to the low interest credit card average (10.46%). Virginia-based credit unions held $11.1 billion in credit card loans at year-end 2013, according to NCUA, after seeing growth of 16.1% in 2013.

[READ MORE]

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As Banks Cut Back, CUs Plan To Expand Their Branch Networks

As banks cut back on branches, credit unions are stepping up their interest in bricks-and-mortar service delivery. Credit unions executives as well as design and build experts say CUs are beginning to loosen the belts on their facilities budgets after having tightened them during the recession. And, as expansion decisions are being made, opinions on how CUs should — and will — expand vary, ranging from the traditional full-service office to the "personless" branch.

NCUA data found that in 2009, 91 credit unions said they were considering branch expansion. In 2013 that figure jumped a whopping 648% to nearly 700. "That is a dramatic increase," said Mike King, VP of strategic planning at design and build firm DEI. "In my opinion, that really quantifies credit unions' growing interest in branching." The apparent CU interest contrasts what SNL Financial recently reported — that banks, on average, are cutting back sharply on facilities. (Credit Union Journal, May 12)

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Compliance/Regulatory Affairs News

CFPB Designs 'Easier' Electronic Format for Reg Z

The Consumer Financial Protection Bureau has launched an electronic version of Regulation Z, the flagship federal regulation protecting consumers in matters involving credit products. Regulation Z implements the Truth in Lending Act (TILA) and has undergone several recent changes, including new rights and disclosures for mortgages.

The new format for Regulation Z uses CFPB's eRegulations tool, which was launched last year as a way to combine important information that is hard to navigate or spread over multiple pages throughout a regulation.

[READ MORE]

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Financial Services/Marketplace News

We’ve Been Asking All the Wrong Questions About Retirement

Something to think about as you plan your credit union's next retirement seminar: No longer is retirement planning purely a math game, where you choose a retirement date and an arbitrary goal like $1 million and then try to maximize returns to get there by age 65 or 67.

Not quite a decade ago, author Lee Eisenberg tried to divine The Number and created a stir over how much individuals would need to save to reach financial security. But post-recession, the retirement industry is moving to a different model. Relationships and experiences come first.

[READ MORE]

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Millennials Have No Idea How Credit Scores Work

Millennials have a reputation for being pretty savvy with technology and social media—not to mention their finances—­but today’s young adults are clueless when it comes to knowledge of their credit. A new study conducted by the Consumer Federation of America and VantageScore Solutions finds that 18-34 year-olds lag behind older Americans on credit knowledge.

Not that the older generations are whiz kids when it comes to credit—just over 40% of consumers surveyed even know what their credit score measures, for instance—but millennials have the dubious distinction of being even less-informed than other age groups. Only around half of millennials have ever even bothered to order a free copy of their credit report, as compared to about three-quarters of older people surveyed.

[READ MORE]
> Yet another worthy topic for your credit unions' seminar calendar.

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The Next Mortgage Threat: Homeowners Who Stay Put

Financial institutions suffering through the mortgage refi hangover are coming to a sudden, perhaps more painful, realization — it could last a lot longer than they thought. One of the big reasons is that financial institutions may have been too successful during the refinancing boom for their own good.

Not only did the boom set banks up for an immediate fall once rates started rising nearly a year ago and refi activity cooled, but it gave a large swath of potential customers a strong disincentive to seek a new mortgage for a long time.

Millions of homeowners in recent years took advantage of the market and refinanced their mortgages at rock-bottom rates — including 19 million alone through the Home Affordable Refinance Program. Thus, if those same homeowners choose to move, they'd almost certainly take on a mortgage with a higher rate, and therefore a costlier monthly payment. (American Banker Online, May 15)

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Why Millennials are Hurting the Real Estate Recovery

First-time home buyers haven’t been much help in the housing recovery, but it isn’t because young adults stopped aspiring to become homeowners. “Though they see a tough road to affording Homeownership, younger renters [those between the ages of 18 and 39] still are very likely to say that it’s in their future plans,” wrote Sarah Shahdad, strategic planning analyst with Fannie Mae, commenting recently on Fannie Mae’s National Housing Survey.

“The vast majority still plan to own someday; about half plan to buy a home the next time they move.” It’s just that, right now, economic realities and life decisions are getting in the way.

[READ MORE]

[RELATED: Home Prices Grew 11.3% in 4Q2013]

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Car Owners Holding on to their Wheels for More Than 11 Years

Americans are holding on to their vehicles longer, a development that could mean fewer lending opportunities for credit unions. The average age of households' cars, vans, sport utility vehicles (SUVs) and trucks increased from 10.1 years in 2007 to just over 11.3 years in 2012, according to Bureau of Labor Statistics Expenditure Survey.

The average age of cars, vans, SUVs and trucks reported in the survey all increased at similar rates from 2001 to 2012, even as the share of trucks and vans increased to 47.3% from 36.2%.

The trend in aging autos coincides with declines in average household income in 2008 dating back to the recession. However, subsequent recovery in households' incomes and a return to previous levels of expenditures on vehicles in 2012 do not appear to have reversed the trend from consumers keeping their vehicles longer.

[READ MORE]

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US Household Debt Jumps for Third Straight Quarter: Survey

Americans racked up more debt in the first quarter, the third straight quarterly increase, thanks in large part to heftier mortgages, a survey by the Federal Reserve Bank of New York showed on Tuesday.

The report on household debt and credit showed however that mortgage originations dropped to their lowest level since the third quarter of last year, which could buck the overall trend of growing confidence among U.S. consumers. Outstanding household debt rose by $129 billion from the previous quarter, boosted by a $116 billion jump in mortgage debt and smaller rises in student and auto loans, the report said.

Total household indebtedness was $11.65 trillion, which is still 8.1 percent below the peak in the third quarter of 2008.

[READ MORE]

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First Quarter Saw Economic Decline, Not Growth

Looks like we counted the chickens before they hatched. It’s a contraction, not the 0.1% economic growth in the first three months of the year as first reported. The news of this shrinkage comes after the government revised downward some key figures from the first quarter.

[READ MORE]

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Only Rich Kids Should Go to College?

The evidence keeps mounting: college loans are holding back young Americans in unprecedented numbers. Should only rich kids go to college? It seems like an absurd question. Yet evidence keeps mounting that, financially speaking, if you must borrow to pay for college you might be just as well off skipping higher education and going straight to work.

Some 37% of American households headed by an adult under the age of 40 have student loans outstanding—the highest share ever, according to a new report from the Pew Research Center. Their median student debt: $13,000.

[READ MORE]

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News From Credit Unions

Bronco Federal Credit Union Awards $20,000 in Scholarships

Bronco Federal Credit Union is pleased to award 10 high school seniors from the Hampton Roads community with scholarships to help them continue their education journey. 

This year’s program awarded one $10,000 scholarship, one $3,000 scholarship, four $1,250 scholarships, and four $500 scholarships to graduating seniors. [READ MORE]

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Fort Lee Announces 2014 Scholarship Winners

Each year Fort Lee Federal Credit Union proudly sponsors the Fort Lee Federal Credit Union Scholarship Program, which awards scholarships to four graduating seniors within its membership. Qualified students submitted applications and were anonymously judged on academic merit, personal achievements, demonstrated leadership experience, extra-curricular involvement and/or work experience.

[READ MORE]

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1,700-plus Northwest FCU Members Enjoy Day of Appreciation

More than 1,700 members of Northwest Federal Credit Union enjoyed a day of food, games, entertainment and prizes at the Credit Union’s 10th Annual Member Appreciation Day on April 26.

“This is our way of thanking our members for choosing us as their lifetime financial partner – a role we take very seriously,” said Chris McDonald, President/CEO of Northwest Federal. “It is always a fun event that’s well-attended, and this year was no exception.”

[READ MORE]

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Langley Federal Credit Union Announces Board of Directors

Langley Federal Credit Union is pleased to announce the election of Richard A. Biege, William E. Griffith, Jr. and Edward G. Henifin to the Board of Directors. The election was held during Langley’s 78th Annual Meeting in April.

[READ MORE]

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ABNB FCU's Fishing Fest Charity Fundraiser Casts Off June 13

ABNB Federal Credit Union is excited to announce its 11th Annual Fishing Fest, supporting the Children’s Hospital of the King’s Daughters (CHKD), will be held on June 13. ABNB’s annual event has raised more than $250,000 for CHKD, and this year’s event will continue to add to this amount. 

“This fundraising event is very important to our ABNB family,” said Kelli Ragland; Vice President of Marketing and 2014 Fishing Fest Chairman. “Many of our employees have been affected by the supportive and generous care given by CHKD. It is an honor to give back to such a worthwhile organization.”

[READ MORE]

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Chartway FCU’s We Promise Foundation Receives Charitable Donation From Professional Golfer Marc Leishman

Marc Leishman, Australian professional golfer who currently plays on the PGA Tour, recently donated $7,000 to Chartway Federal Credit Union’s We Promise Foundation to make dreams come true for children facing life-threatening or debilitating diseases. The 2009 PGA Tour Rookie of the Year gave this generous donation following his participation in The Presidents Cup 2013 at Muirfield Village. 

[READ MORE]

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Chapter News

NoVA Chapter Meets June 9; Celebrates Cooperatives

The NoVA Chapter and National Cooperative Business Association will partner with Cabot Creamery to celebrate cooperatives during a June 9 event at Paradise Springs Winery in Clifton, Va. (13219 Yates Ford Rd.) Time: 5 p.m.-7 p.m. This event will take the place of the monthly chapter meeting. RSVP before June 2!

[LEARN MORE]

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Marketing News

If You Think Your Youth Campaign Is Hip, It Probably Isn’t

Credit unions searching for new ways to engage younger members are finding youth advisory boards help open the door to meaningful dialogue and connect with a new demographic on their own terms.

Missoula Credit Union ($383.2M, Missoula, MT), HarborLight Credit Union ($94.3M, Whitehall, MI), and Charlotte Metro Credit Union ($307.5M, Charlotte, NC) are using youth advisory boards to gain insightful feedback and insider tips on what marketing outreach does and doesn’t work.

[READ MORE]

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Community Banks Consider Offering Prepaid Cards

As prepaid cards grow in popularity, more community banks are eager to snag a piece of the action. Most banks are dealing with stagnant fee income, tepid loan demand and low interest rates, but smaller institutions have been hit especially hard because of their heavy reliance on spread income. So, many community bankers are evaluating prepaid cards' ability to boost revenue, reach new customers and build stronger ties to existing ones. (American Banker Online, May 9)

> Prepaid cards could also be a smart play for your credit union. Want to evaluate your options? Contact your League's David Deacon at 800.768.3344, ext. 634 or ddeacon@vacul.org.

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Human Resource Management

Filene Paper: Women Comprise 70% of CU staff, 41% of Leadership

Among the facts highlighted in a new white paper from the Filene Research Institute, women comprised only 41% of credit union senior staff in 2012 despite making up 70% of the credit union workforce in the United States. The white paper will serve as the touchstone for a colloquium hosted by the Filene Research Institute and the World Council of Credit Unions on the challenges and opportunities faced by women at every level in credit unions on June 19 at the University of Southern California.

"Women in Leadership: Obstacles and Opportunities," is the first report from Filene's Credit Union Women in Leadership International Research Series. In coordination the Women in Leadership Colloquium, Filene will host a free webinar June 5 to explore woman's perspective in leading credit unions.

To register, use this link.

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