President's Report - March 2008
Credit Union Opportunities in a Housing-led Recession
According to the Wall Street Journal, 70 percent of all economists now believe that the U.S. is in a housing-led recession. The technical definition of a recession is two consecutive quarters of negative GDP growth. Most of the really bad economic news has occurred in the current quarter so it will be a while before the economic numbers support the current speculation regarding the faltering economy. Of course, as the old saying goes, “a recession is when your neighbor loses his job and a depression is when you lose your job.” As the obvious pain settles in with Michigan job losses, falling home prices, a plummeting stock market, skyrocketing foreclosure and bankruptcy filings and general consumer angst, we don’t need the official economic data to convince us that things are pretty bad.
Here are a few other pieces of cheery news from the State of Michigan. We lead the nation in outward migration; for every person that moves to Michigan, two are leaving. We also have 1.8 million people on some kind of public assistance — 18 percent of our population. I also recently heard a top Granholm official suggest that about one-third of the rest of Michigan is only a couple of paychecks away from joining the ranks of those relying on public assistance for financial survival. So where is the good news — or when will it come? I have always said that the tougher economic times make credit unions more relevant. They exist to help their members and communities get through difficult times. Unlike banks and other businesses that really exist to generate a return for shareholders, credit unions exist to provide financial opportunity in good times and bad. The term “not-for-profit” differentiates credit unions, especially in tough economic times.
This housing-led mortgage crisis should have two facets for the credit union community. The first is a no-brainer. That is, credit unions need to help their members with mortgage modifications as well as all the other traditional loan and savings products that help members save money and borrow for their financial well-being. The second facet of duty and opportunity may not be as obvious. I believe that credit unions do have both a duty and an opportunity to help address the economic challenges faced by the neighborhoods, communities and states that they serve. Again, this is what differentiates credit unions from other providers. The other for-profit financial service providers invest in the community in order to create a better business climate so shareholder returns can be maximized. The future business climate is also important for credit unions — but for very different reasons. The not-for-profit motivation should lead credit unions to reach beyond the borders of their existing membership, because as the business climate is improved, members and future members will have jobs and increasing wealth that comes with strong housing markets, a strong stock market and a higher quality of life that comes with a strong economy.
So, as the MCUL is working hard to address the housing and mortgage crisis in a coalition with the Michigan Bankers Association through the HOME SAVER Coalition, we have been working with MSHDA to create mortgage products that could help credit unions and banks take the necessary risks to help re-finance some of the 212,000 Michigan sub-prime mortgages that are on the verge of going through foreclosure. This process is both difficult and frustrating. The State is financially strapped. MSHDA is challenged by a battered bond market, where it gets its funding for purchasing loans, and by a private mortgage insurance market that is also being slammed by losses. The new “Save the Dream” loans authorized by the Michigan Legislature will offer some help to consumers via the banks and credit unions that will make the loans and then sell them to MSHDA. But with a heavy reliance on private mortgage insurance, the practicality and reach of these programs is under serious doubt.
The HOME SAVER Coalition continues to challenge MSHDA and the Granholm Administration to create a new HOME SAVER loan program that would have MSHDA or another state agency step in as a private mortgage insurer. This would enable banks and credit unions to help some of the 212,000 sub-prime borrowers by making mortgage loans that could be re-financed and held in portfolio. FDIC Chairman Ben Bernanke has testified that as much as 80 percent of these loans could be performing loans if rate adjustments could be made. These are the borrowers that credit unions should want to help once they are qualified for membership. Yes, these would be higher-risk loans and many credit unions are not positioned to take on more balance sheet risk in this economy. But many credit unions with strong capital bases and well-managed assets are in a position to look beyond their current members in search of ways to strengthen the economy by helping to address this housing crisis. Stay tuned as we hope to see some programs announced as soon as April that would help credit unions help their members and communities in this way. The first step for every credit union interested in this effort is to become a MSHDA-approved lender. The MCUL or MSHDA can help you through this process.
And if any of us needed validation for the severity of the mortgage crisis, we got it when U.S. House Banking Committee Chairman Barney Frank, D-Mass., announced his plans on March 13 to introduce the FHA Housing Stabilization & Homeownership Retention Act. This proposed legislation is mirrored by a similar plan supported by U.S. Senate Banking Committee Chairman Christopher Dodd, D-Conn. The MCUL and CUNA are extremely likely to not only support this legislation but work hard to get it quickly passed. At least initially, President Bush has expressed a reluctance to support this kind of proposal but many feel that, in an election year and given the severity of the problem, political pressure will be intense on the President and reluctant lawmakers to support this proposal.
Remarkably, the Congressional proposal is extremely similar to the proposal crafted by our HOME SAVER Coalition. The one big difference is that the national program would be dramatically larger in scope, provide far more public assistance and would be far less risky for credit unions and other lenders. The proposal would permit the FHA to provide up to $300 billion in new guarantees that would help refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder would have a cash payment and no further credit exposure to the borrower. This could potentially refinance between 1 and 2 million loans — helping these families stay in their homes, protecting neighborhoods and helping stabilize the housing market.
Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender (i.e., a credit union or bank), which would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay. If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage. In addition to the first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (i.e., borrower flipping). This plan would also provide $10 billion in loans and grants for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible. Each state’s loan and grant authority would be based on the state’s percentage of nationwide foreclosures, so Michigan would get a healthy allotment. These funds could be used by housing authorities (i.e., MSHDA), nonprofits and private-sector entities for the purchase and resale of homeownership housing. These funds could be used by MSHDA or conceivably a non-profit organized and owned by credit unions for purposes of making special loans like the HOME SAVER loan program. The MCUL will be working aggressively to find a way to tap into this grant authority to help credit unions expand their outreach to borrowers who need help. Whether through MSHDA or through a newly formed credit union organization, the grant money could help credit unions reach thousands of borrowers to help them stay in their homes through credit union assistance.
So while the MCUL works to support the passage of the Frank/Dodd legislation and also continue its work in Michigan through the HOME SAVER Coalition, the thing that each credit union can do is develop policy now to support these kinds of special mortgage lending programs with a portion of its assets. I would suggest that well-capitalized credit unions allocate as much as 1 percent of their assets for this kind of mortgage program where the loan is held in portfolio with PMI coverage covering 20 percent of the loan for borrowers who have a demonstrated capacity to pay and for whom their LTV ratios are at least 80 percent or lower as a result of a discounted payoff to the existing lender. The MCUL will work with state and federal regulators to assure that they support these efforts.
Consider the power of a program like this. With a 70 percent participation rate by well-capitalized credit unions, $250 million could be made available to help these borrowers stay in homes. With an average loan amount of $125,000, some 2,000 homeowners could be helped. The effect of fewer foreclosures would have a domino effect on neighborhoods and communities. Additionally, if the federal legislation passes and credit unions are able to fund and sell FHA loans, the capacity within the Michigan credit union industry makes it conceivable that an additional 10,000 loans could be funded and sold to FHA through a program like this. What a dramatic impact we could have on the housing and foreclosure crisis in this state!
We will continue to work with the Michigan Bankers Association through the HOME SAVER Coalition. Despite the banking industry’s attacks on the credit union industry, this crisis requires that we look beyond our differences in order to focus on a common challenge that is far greater than the decades-long feud between our industries. The scale and reach of the banking industry is needed in order to have an impact that would be 10 times as great as what credit unions could do by themselves.
So, the MCUL is encouraging action on three fronts. First, that any credit union participating in mortgage lending by itself or through a CUSO become a MSHDA-approved lender as soon as possible. Also, be ready to participate in an upcoming mortgage lending summit sponsored by the MCUL slated for Friday, May 2, at the Michigan Credit Union Center in Northville Twp.
Second, become an FHA-approved lender and be ready to support the expanded FHA program that will hopefully be established as a result of new legislation in the coming months. Third, set policy to participate in funding portfolio loans up to 1 percent of your assets subject to details that the MCUL will provide in the near future. The MCUL will provide some model policy language in the coming weeks to assist with this.
The credit union industry has always led the way in serving their members and communities during good times and bad. The growing housing and mortgage crisis requires as never before that we meet this commitment.
Here are updates on some other timely issues that I’m sure you’ll find of interest.
April will mark the debut of a new format in the monthly President’s Report. Rather than send a separate Board Report to MCUL/CUcorp policymakers, we will begin providing a “Policymaker Edition” of the President’s Report. This will provide both credit union CEOs and our MCUL/CUcorp policymakers with the same extensive information in the President’s Report — but with notes in the margin that will expand on many of the issues with information that is more relevant to policymakers.
A record number of Michigan credit union leaders attended the recent 2008 CUNA Governmental Affairs Conference (GAC) in Washington D.C. The 2008 total of 126 bested the previous record of 122 set in 2006. For the first time ever, the MCUL provided four daily video reports from the CUNA GAC, which were well received by Michigan credit unions. Two of the videos showed the Michigan delegation’s Hill visits as viewers were taken inside the offices of U.S. Reps. Joe Knollenberg, R-Bloomfield Hills, Tim Walberg, R-Tipton and Sander Levin, D-Royal Oak. A reception for U.S. Rep. Carolyn Cheeks Kilpatrick, D-Detroit, was also featured. The MCUL Legislative breakfast, CUNA GAC sessions and a chat with outgoing CUNA Chairman and current National Credit Union Foundation Chairman Allan Kemp McMorris was also part of the series. The combined four videos were viewed more than 2,000 times and may still be accessed at http://cunagac.cutvonline.com/.
The excitement is building for the 2008 MCUL Governmental Affairs Conference (GAC), tagged “Lights, Camera, CUs in Action.” Registration is now open for the popular annual event at http://www.mcul.org/2008_MCUL_GAC_1443.html. The 2008 GAC features Fox News Political Correspondent Morton Kondracke as the Keynote Speaker; Senior Capital Correspondent Tim Skubick moderating “Handicapping the 2008 Elections,” a discussion between Democratic State Party Chairman Mark Brewer and his GOP counterpart, Saul Anuzis; OFIS Commissioner Ken Ross; and Ford Motor Company Senior Economist Emily Kolinski Morris. Questions regarding the MCUL GAC should be directed to MCUL Political Affairs Manager Nancy Short at Ext. 353 or nes@mcul.org.
The MCUL’s 2008 state and federal PAC fund raising continues at a strong pace. MCULLAF/MCULAF raised more than $40,000 in February alone. As of Feb. 29, the combined fund-raising total of MCULLAF (federal) and MCULAF (state) was $68,731 or 16 percent of the overall goal.
Former MCUL Vice President Ken Ross was appointed by Governor Granholm as the permanent OFIS Commissioner Feb. 22, officially removing “acting” from his title. Ross assumed the acting commissioner role following the resignation of former OFIS Commissioner Linda Watters in October. He had formerly served in various roles at OFIS including deputy commissioner for policy and chief of staff to Commissioner Watters. Prior to his move to OFIS, Ross held the position of MCUL Vice President of Regulatory and Legal Affairs. The Senate has scheduled a confirmation hearing for Ross on April 15. The MCUL is arranging a reception in the new commissioner’s honor on Friday, April 4, at Michigan First CU (MW) in Lathrup Village. For more information regarding this event, contact MCUL Regulatory Affairs Director Mike DeFors at (800) 262-6285, Ext. 464, or mjd@mcul.org.
The media buy for the 2008 Cooperative Advertising campaign has been finalized and the program is ready to hit the airwaves. A total of a little more than $1.5 million will be utilized across the state. Some $750,000 was raised by credit unions. This year five chapters also participated — Southwest, Upper Peninsula, Jackson, Mid-Michigan and Moon. Participation came in at 52 percent, up 5 percent from the previous year. Cooperative advertising money has also been spent this year to sponsor BizKids on the Lansing PBS station. The 2008 campaign will begin in early April and run anywhere from seven to 12 weeks, depending on the market. The campaign will feature a mix of network television, cable television and radio spots. Collateral materials such as posters, stuffers and table tents are available for those credit unions participating in this year’s campaign.
The Just file it! We’ll Help tax-preparation program may well have computers smoking across the state. With more than 75 credit unions helping members file taxes through the on-line service, the amount of money returned to date is more than $5 million just in credit union returns. That’s more than four times the amount returned in the entire tax season last year. Michigan is second in the program in number of users and amount of returns; only California has more and the program originates in the Golden State. Dow Chemical Emp. CU (MM) leads the Michigan charge with 118 filers and more than $272,000 returned to members. Michigan Tech Emp. FCU (UP) and Communications Family CU (MM) are right behind, each with 68 returns filed.
A four-person delegation from the Caribbean island nation of St. Lucia will be visiting Michigan in May. A number of events are planned around the visit, including the official signing of the World Council of Credit Unions (WOCCU) partnership agreement between the MCUL and St. Lucia slated to take place during the 2008 MCUL Annual Convention and Exposition (AC&E) in Grand Rapids. A welcome reception will also be held for the delegation at the AC&E. A letter and flyer with more information on the needs of St. Lucia credit unions has been sent to Michigan credit union CEOs. The MCUL is looking for credit unions with experience in mergers, debit cards and shared branching to provide mentorship for our visitors from St. Lucia. Visits to these credit unions will also be set up in May. To date, six Michigan credit unions have expressed interest in partnering with the MCUL and St. Lucia credit unions.
The MCUL’s channel on YouTube continues to add new content. You will notice a refreshed look with more than 40 videos. The MCUL President/CEO Dave Adams’ Advocacy in Action videos are now posted on You Tube. Each has been edited into three parts. The MCUL videos are also taking on a new approach. Many feature a reporter style voice track to go with the video and sound bites. This gives added content. To date, the You Tube channel has been accessed over 500 times with Con. Mike Rogers visit to LOC Federal Student branch having the most views at 210. The MCUL Mortgage Summit in January has been viewed 162 times. In total, the videos have been viewed more than 1,100 times. You can access the channel by clicking http://www.youtube.com/user/MCUL6.
The MCUL Podcast content continues to grow, with four additions just in the past month. Among the new additions, MCUL Public Affairs Director Mike Bridges talks with veteran journalist Morton Kondracke about the upcoming presidential race. The podcast also features information about the upcoming MCUL Governmental Affairs Conference (GAC), where Kondracke will be the featured speaker. Also new is MCUL President/CEO Dave Adams’s conversation with State Rep. Brian Calley, R-Portland; Tony Rizzo talking with MCUL Information Services Manager Al Zawacky about credit union marketing trends; a run-up to this year’s MCUL Marketing Conference and a talk with John Zasada of RSM McGladrey, Inc., about the core elements of good compliance policy.
Money Smart Week (MSW) 2008 is coming up fast April 20-26. The goal is to have more than 100 credit unions participate in this important statewide financial education effort. The program is in the process of being printed and is sent to media members across the state, so inclusion in the brochure is critically important. Promotional items like bookmarks, shredded money and inserts are also available for credit unions taking part in MSW. The MCUL is also working to once again have local lawmakers visit student-run branches in their area or give a presentation to middle or high school students. If you would like more information on MSW or would like to participate, contact MCUL Public Affairs Director Mike Bridges at mjb@mcul.org or Ext. 246.
For the first time ever, credit union volunteers and leaders will be heading to beautiful Holland, Mich., for the Spring Leadership Development Conference (SLDC). Slated for Friday through Sunday, April 4-6, the SLDC will feature a keynote presentation by Mark Adams on “My Heroes — Lessons of Leadership.” The Executive Speaker Series will present aspecial series of topics to help participants stay up to date with the latest trends and issues affecting credit unions. The Volunteer Achievement Program (VAP)series includes the important core modules, ideal for new board members. Participants and guests will be sure to enjoy an exciting afternoon event featuring all that's special about Holland, including a great conference setting at the new Doubletree Hotel. Further information, the complete agenda and registration is available at www.mcul.org, Keyword: SLDC.
Registration is now open for the 2008 MCUL Annual Convention and Exposition (AC&E). Moving Michigan Forward is the theme of this year’s AC&E, slated for Thursday through Saturday, May 15-17, at the Amway Grand Plaza and DeVos Convention Center in Grand Rapids. Agenda highlights include a first-time attendee orientation; the Children’s Miracle Network (CMN) silent auction; breakfast and lunch served in the exhibit hall on Friday for registered attendees and guests; expanded Saturday education sessions; and additional lunch and learn sessions, as well as training geared specifically for chapter leaders. The Friday night dinner is a themed tail-gate party featuring the popular “Phil Dirt and the Dozers” band for dancing. Additional information about the AC&E can be found online at www.mcul.org, Keyword: 2008ACE.
A new credit union hasn’t been chartered in Michigan since the 1980s, but there’s a chance that may soon change. MCUL CU Relations staff has been working with a group on the western Michigan shoreline that would like to charter a new credit union. The League’s Relationship Managers are assisting the group in constructing a potential membership survey to gauge service needs in the area. Other areas of assistance include helping the group prepare a mission statement, choose an appropriate name, apply for the LICU designation and develop a business plan.
CUcorp CU Lending Solutions recently implemented the new COMPROMISED MANAGER product, which will allow CU Lending Solutions to block an account, notify the cardholder and issue a new card in just seconds. CU Lending Solutions continues to sign credit unions for this great product. It can reduce the time to block accounts and have new cards re-issued to credit union members. Currently, 35 credit unions are already aboard with the COMPROMISED MANAGER product and we are seeking additional credit unions to sign up.
CUcorp continues to pitch AAA’s Show Your Card and Save Program to Michigan credit unions. AAA has provided marketing support for the 35 credit unions that are participating in the program. The program was officially launched in November with a full-page ad in the AAA Living Magazine. In December, AAA paid for up to two ads to be placed in local newspapers for each participating credit union. Under the program, credit unions offer special discounts on select auto loan rates or increases on select savings accounts to their members that are also AAA members. The program is seen as a great opportunity to strengthen the relationship with credit union members that utilize the credit union strictly for insurance.
Eight Michigan credit unions — more than any other state — have earned the prestigious CAMEO Award for posting industry-leading growth in their credit card portfolios in 2007. The honorees are Northern United FCU (UP), Clinton County FCU (LN), Eaton County Educational CU (LN), Dearborn Village Community CU (MW), U.P. Catholic CU (UP), Saginaw Medical FCU (MM), American 1 FCU (JA) and Community Schools CU (MN). Each year, CSCU (Card Services for Credit Unions) honors 25 credit unions throughout the U.S. with the CAMEO Award for achieving significant increases in their credit card portfolios. CUcorp CU Lending Solutions also recently distributed $1,750 of winnings to Eaton County Educational CU, Monroe Area FCU (DR) and Northern United FCU, the top three finishers in the Second Half Promotion in 2007. A total of 23 credit unions participated in a promo that featured ProDirect and Targeted Incentives. Northern United, which finished in third place for the Second Half Promo, also finished in first place during the First Half Promo of 2007.
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Regulatory Affairs
