Tuesday, January 28, 2014

New Risk-Weighted Capital Rule: Penalizing Credit Union Homebuyers...

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.... 


Q:  Why do you so thoughtlessly choose to unjustly penalize the American, credit union homebuyer ?
* robust - (you know)... this just confirms it again!     



Dennis Moriarity said...

Probably because they can! Credit Unions have been measuring themselves ,with the aid of a calculator, provided by NCUA and feeling relieved that they are"okay". At least most of them. Your analysis displays a weakness that will harm the member and eventually the credit unions. It is tyranny in a form that is not easily recognizable because of the way it is offered. Perhaps a perusal of Jon Roland's "Principles of Tyranny" (short read 4 pages) might serve to enlighten everyone as to what is happening to them and us. Special attention to the final section on "avoiding tyranny". Colder than H here.

Anonymous said...

And an auto loan at a cu is risk weighted less than at a bank.
Think about the implication of the inconsistency of that.
Robust roa.

Anonymous said...

Bank regulators know they do not own the capital.

NCUA's actions continue to reveal that they consider all cu capital to belong to....them. Don't wanna be losing any (more) of it.

Anonymous said...

The leadership at ncua is stuck on stupid and it starts right at the very top with Matz.

Anonymous said...

What's a 4-letter synonym for stupid?