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A strong, "toxic" mix
of risk and bull? |
Well, the "New NCUA" has issued its "long feared", risked-weighted capital proposal to small applause. You can be sure "the fight is on" in many arenas, depending on where and how severely your individual credit union's "ox was gored" by the new, proposed rule.
So. where should we start? Why don't we do something "credit unionish" and start with the member!
Under the NCUA proposed rule, a credit union member residential mortgage loan will be risk-weighted as follows:
0 to 25% of assets: 50% risk-weight
25% to 35% of assets: 75% risk-weight
35% to 100% of assets: 100% risk-weight
The banking industry has also implemented a risk-weighted structure for banks. The risk weight for a bank residential mortgage loan is:
0 to 100% of assets: 50% risk-weight
So, in NCUA's infinite wisdom, the risk of a credit union member mortgage loan is higher than the riskiness of a bank customer mortgage loan (despite numerous research studies which prove exactly the opposite).
It's not too hard to imagine a credit union member refinancing her home from the local bank to the local credit union - same property, same terms, same rate, same "QM" underwriting, same perfect credit rating - and the NCUA declaring that the mortgage "magically" became twice as risky at the credit union - the identical mortgage may require a capital charge of 100% more as soon as it hits the credit union's balance sheet!
So, the first question of the day for the "robust"* capital gnomes at NCUA is....