Looking to Bring Additional Resources to Strengthen LICUs Nationwide

CDCU CEOs pose with Louisiana CU League CEO Anne Cochran and Federation Director of Community Development Investments Terri J. Fowlkes. From left to right: Shreveport FCU CEO, Helen Godfrey-Smith; Anne Cochran; Hope FCU CEO Bill Bynum; ASI FCU CEO Mignhon Tourné; and Terri J. Fowlkes.

(August, 18, 2011 – New York, NY) While the economic downturn continues to challenge financial institutions nationwide, credit unions in Louisiana should be prepared to take advantage of the current opportunities to expand their mortgage lending portfolios, particularly among low- and moderate-income populations They should also consider obtaining secondary capital and non-member deposits to satisfy the regulatory demands of a growing balance sheet and a potential increase in membership. This was the message from Terri J. Fowlkes, Director of Community Development Investments at the National Federation of Community Development Credit Unions (Federation), during her presentation at a special reception at the Louisiana Credit Union League’s recent Annual Meeting and Convention, held August 3-6 in New Orleans. The reception held by the Federation was open to all conference attendees, and was sponsored by two member CDCUs, Shreveport FCU and ASI FCU.

“With interest rates holding steady at rock-bottom levels, credit unions need to diversify their portfolios by continuing to make mortgages and increase their operating income,” Fowlkes said. “Responsible loans made to qualified members provide credit unions with a much better yield than they’ll get from most other investment vehicles, and helps members build wealth through home ownership.”

Fowlkes acknowledged the difficulty many credit unions have in making loans where no secondary markets exist, particularly for non-traditional loans such as Individual Tax Payer Identification Number (ITIN) loans, manufactured housing loans, and coop loans, but here is where the Federation can help. Through its CDCU Mortgage Center, LLC, the Federation purchases conforming and non-conforming affordable mortgage loans from member CDCUs.  The CDCUs may maintain the servicing relationship on the loan, but the Federation purchases that asset and provides the credit unions with capital to make more loans. Launched in 2005, the Federation has purchased approximately $10 million in loans from CDCUs across the nation, and is looking to expand its portfolio by several million this year.

Fowlkes stressed that the Federation is looking for credit unions that truly want to expand their lending activities and may not have enough capital to do so.

“We conduct a rigorous due diligence on all the loans we purchase,” Fowlkes explained, “We have been growing our portfolio very slowly to ensure we buy performing assets from CDCUs. We know that there are hundreds, if not thousands of credit unions out there, who are holding paper they can’t get rid of, simply because of the lack of secondary markets. The Federation wants to become the primary secondary market for credit unions serving low-income communities.”

Given the economic distress across Louisiana, the Federation and the Louisiana Credit Union League are exploring ways to increase credit union mortgage lending through utilization of the Federation’s CDCU Mortgage Center Secondary Market, and by providing financial resources in the form of deposits and secondary capital, to Louisiana’s low-income designated credit unions.

“The Federation is the only credit union organization offering secondary (alternative) capital to credit unions nationwide,” Fowlkes stated. “This is a product we created in the late 80s, and which we have successfully invested in dozens of credit unions nationwide for well over 20 years.  Secondary capital is vital for CDCUs serving low-income communities, because it allows a credit union to grow without diluting its net worth.  It essentially allows credit unions to take calculated risk to help members, without having NCUA breathing down your back.”

Only low-income designated credit unions can accept secondary capital, according to NCUA regulations, and only member CDCUs are eligible for secondary capital loans from the Federation.  However, there are nearly a thousand low-income designated credit unions who could tap into this resource.  More than a quarter of them are already members of the Federation, but there are many more who could benefit from this affiliation.

The Federation is working closely with several state leagues, including Louisiana, to help spread the work about the benefits of membership.

The Community Development Investment Program provides investments and capital resources to member CDCUs.  With more than $50 million in assets under management, the Community Development Investment Program has invested more than $90 million in CDCUs since inception, increasing their capacity to support underserved communities.

For more information about the Federation’s investment products for credit unions, click here, or contact cdinvestment@cdcu.coop.

© 2011 National Federation of Community Development Credit Unions.