Friday, July 15, 2016

Risk-Based Capital: Commenting on Your Future - Part 1: FIRST MORTGAGE LOANS

(originally published 3/16/2014)
.. in which NCUA throws CU members seeking mortgages 
under the bus!

Thought we might spend this week seeing if you actually give a rip about the future of the credit union movement.  If you do, then you need to take one minute this week to say so.  

If you don't, well… well ok, but don't expect to work for, sell to, or be a member of a "credit union" in the not too distant future… your choice!

The newly proposed and purposefully opaque NCUA risk-based capital (RBC) regulation will - intentionally through ineptness or unintentionally through ineptness - destroy credit unions through massive, unnecessary, over-regulation - disemboweling all "small" credit unions (<$500 million); render all credit unions uncompetitive through excessive capital requirements, particularly on basic credit union lending services; and without question increase the cost of financial services to all individual credit union members.

What's "capital"?
First,  just understand that requiring more "capital" for a CU service is little more than adding an NCUA mandated "tax" or "fee" to the CU service. Always useful to note that NCUA "taxes" and "fees" are not the result of democratic debate, vote, nor Congressional approval -  the all-knowing, NCUA just "makes them up" and imposes those taxes and fees on me - and on you! 

Mortgages are an important borrowing need for most consumers at some point in life - owning a home is, after all, part of The American Dream - right? Let's look at the NCUA proposed capital tax on credit union mortgages vs. the capital charge on bank mortgages:
                                                   Capital Required 
                                                          Bank     CU
First Mort. < 25% of assets:            50%     50%
First Mort. > 25%< 35% assets:     50%     75%
First Mort. > 35% of assets:            50%   100%

…. so NCUA has "made up" an extra capital tax on CU member mortgages.  Above 35% of CU assets, the NCUA capital tax is twice that of a bank mortgage.  Is there any difference in the consumer borrower, the collateral, the CFPB/QM underwriting standards on the mortgage?  Absolutely not!

If this arbitrary NCUA, extra capital tax on CU members sounds 1) unreasonable, 2) unfair, or 3) just plain stupid; then perhaps you will take one moment and write, fax, or e-mail a comment on this proposal to the NCUA.  Your comment doesn't need to be "real formal", nor complex and "flowery" - comments from real people carry a lot of weight (and no reason not to be polite).  Perhaps you just ask:  

"Why will a credit union borrower be required to pay a higher capital tax, than a bank borrower?"  


Anonymous said...

Included with your comments might be something that points out to the NCUA that credit unions, for the most part, survived the worse RE bubble in three-four generations and the financial meltdown that came with it quite well. The unfair risk based capital rule penalizes credit unions and fails to take LTV and interest rate resets into consideration at all. Prudent RE lending is being ignored at the NCUA while banks are allowed much more latitude by their regulator. Makes us wonder if NCUA is really needed.
Georgia Birddog

Anonymous said...

Whatever you tax more of you get less. This simple concept seems to elude the Robust Economists at NCUA.

I just do not remember that many credit unions got into trouble who did responsible mortgage lending during the last meltdown. Seems like the problem was with the Corporates who were buying bad mortgage paper. Maybe the increased tax should be on the mortgage paper issued by the government agencies?

What problem does this Risk Based Capital Regulation protect against. The consequence (and I did not use unintended on purpose) is less available to members of modest means to purchase a home.

NCUA needs to stop this sophomoric approach to developing a regulation. They need to show the evidence of the losses they intend to protect against, and get our agreement that this is a problem that is solved by additional capital. The propose regulation is nothing but tilting at windmills.

A properly underwritten home loan is still the best method of increasing members wealth and by extension the wealth of the credit union.

Jim Blaine said...

Doesn't take much more time to file a comment on the reg as it takes to write a comment on this blog... did you send in your e-mail?

"Why are CU members seeking mortgages being penalized?

It's up to you...

Dennis Moriarity said...

Thanks for the reminder Mr. B

Mr. Gerard Poliquin
Secretary of the Board
National Credit Union Administration
1775 Duke St.
Alexandria, Virginia 22314-3428

Dear Secretary Poliquin,

Unity Credit Union, Warren, Michigan #62362 writes in opposition to proposed regulation concerning the Risk Based Capital Proposal.

“The mission of the NCUA is to facilitate the availability of credit union services to all eligible consumers, especially those of modest means, through a safe and sound credit union system.” So states the NCUA webpage. Yet this proposed regulation is exactly the opposite of what is described in your “mission statement”.

NCUA certainly steps away from its avowed mission if it were to allow this proposed regulation to go ahead without serious amendment.

Are we to believe that the higher standards, imposed on credit unions relative risk ratings on mortgage lending to be a facilitation of available services to eligible consumers? Hardly because, as the Board already knows, the risk ratings imposed by this proposed regulation would set standards higher than our competitors and due to their punitive nature, discourage credit unions from participation in members oriented mortgage activity and turn that activity to our competitors.

In the interest of simple equity the risk based requirements should not exceed the requirements imposed on our competitors by their regulators.

Another troubling aspect of the proposal is it's allowance of “additional authority” to impose even higher capital requirements than imposed by the proposed new regulation. Either write the rules in a fashion that is distributed equally on the governed or dont write anything at all. We find it astounding that when people write rules they give no consideration to the possibility of abuse even if they are currently well meaning. Administrations change and the good intent of todays writers and rulemakers (hopefully) can change as new people are placed in charge. To allow subjectivity on a matter this serious is to invite disaster.

We believe it is in the best interests of NCUA and Credit Unions and their members to take a careful look at what NCUA proposes and act to level the field and eliminate the subjectivity referred to in this response

Dennis Moriarity, CEO
Unity Credit Union, Warren, MI 48092

Anonymous said...

This "mere" member asked why I and my credit union should be penalized for taking a mortgage from them.
I don't know if it'll help, but sometimes small voices can be heard.

William Brooks said...

What NCUA needs to understand is that their proposed regulation if passed in present state actually gives credit unions a winning justification to convert. An improved regulatory environment to do mortgage loans would be a easy justification to make. The Boards could clearly justify buy simply showing that member cost of borrowing would potentially be cheaper.

Anonymous said...

Letters to the NCUA board secretary is not the answer at this point. You have two board members who claim they are out attending credit union events. If by chance you find one of them out there doing that ask them the questions. Why did you do what you did and are you going to do anything to change it? Do not let them off the hook by accepting a reply like "staff is reviewing it" or "we will make changes after we see how it goes". Use you trade organizations to put the pressure on them not Congress. All Congress is going to give you is lip service and legislation that is going nowhere. Tell Nuzzle and Burger to earn their big salaries and get something done. Put the squeeze on the M & M's until you crack their shells.

Anonymous said...

Love the above response.
"Use your trade organizations to put pressure on (NCUA)".
How's that worked for you in the last, tough guy?

Here is credit union's only hope in getting a material change in NCUA...
...a collective large group of credit unions of all sizes physically laying on Congress.

Which you won't do and probably won't work.

We need to pay taxes to get a better regulator.