(February 24, 2009 – Washington, DC) Meeting in Washington, DC, the board of the National Federation of Community Development Credit Unions (Federation) adopted resolutions supporting measures to sustain the credit union system; enhance the viability and capacity of low-income credit unions; and aid low- and moderate-income families hard hit by the economic crisis.
“We are concerned about the consequences of reduced net worth and return on assets (ROA) that would necessarily result from the measures that the National Credit Union Administration (NCUA) has proposed,” said Federation President/CEO Cliff Rosenthal. To mitigate those effects, the Federation supports the following legislative and other proposals that have been advanced.
- Corporate credit unions should gain direct access to the Central Liquidity Facility for liquidity and capital.
- TARP funds should be made available to the credit union movement.
- Share insurance premiums should be spread out over as long as eight years, on parity with other financial institutions.
“These actions will help all credit unions,” Rosenthal said. “However, it is important to recognize that small and low-income credit unions are especially vulnerable during this crisis. In 2008, the pace of liquidations and mergers of low-income credit unions doubled, and far exceeded that of the rest of the credit union industry. If this trend continues, the capacity our credit unions have painstakingly built up over the last thirty years will be dismantled, leaving many low-income communities with little or no access to affordable financial services.”
The Federation is particularly concerned about the potential for a drop in net worth of low-income credit unions resulting from the corporate stabilization measures. “We have identified a strategy which, at no cost to the government or taxpayers, would help guarantee that low-income credit unions can meet the required statutory net worth requirement and give them added strength to increase their lending and financial services to low-income communities.”
Specifically, the Federation proposed that NCUA modify the policies of the Community Development Revolving Loan Fund (CDRLF) to enable it to make loans to low-income credit unions for secondary capital – deeply subordinated, long-term loans that count (with certain conditions) as regulatory net worth exclusively for low-income credit unions. Access to additional sources of secondary capital would enable credit unions to meet Prompt Corrective Action (PCA) capital standards, bring in additional deposits, and expand lending in low-income communities.
The CDRLF, established in 1979, is controlled by NCUA. The CDRLF makes loans or deposits at low rates (currently, 1%) for five-year terms. It has a balance of approximately $16 million. According to NCUA figures, $4 million was undisbursed as of January 31, 2009. Several million dollars are repaid by credit unions to the CDRLF each year. In addition, NCUA regularly requests, and has received, annual additions to the CDRLF of approximately $1 million.
“We are asking NCUA to take the necessary regulatory or policy steps to utilize the CDRLF for secondary capital loans,” Rosenthal said. The Federation made this recommendation in its recent meetings with NCUA board members Hyland and Fryzel. “This is a solution which, we want to re-emphasize, involves no additional taxpayer liabilities or expense.”
The Federation board also endorsed the “Helping Families Save Their Homes in Bankruptcy Act of 2009" (S. 61/H.R. 200).
"Because this bill only applies to mortgages where foreclosure is imminent and where the borrower has requested a modification," Rosenthal said, "we believe it is a reasonable proposal that can save over a million families from losing their homes. Credit unions have a hundred-year history of working with their members to acquire and keep their homes,” he continued. “The Federation has received numerous reports from its member credit unions about their pro-active measures to renegotiate mortgage terms in a way that keeps members from losing their homes, and we expect that will continue even more vigorously if the legislation becomes law.”
Credit unions are vital to the recovery of the housing market and the lending market in general, he concluded. “We hope that Congress will craft final legislation in such a way that it recognizes and enhances the important role credit unions play in the marketplace.”
© 2009 National Federation of Community Development Credit Unions.