NCUA Chairman Hood today announced on behalf of the NCUA Board that the agency is expanding its approach when considering military personnel in determining whether a credit union qualifies for the low-income designation.

This may not seem monumental news, but it is a pretty big deal.

Here’s why. As all credit unions know, a low-income designated credit union (LICU) is exempted from the statutory member business lending cap of 12.25% of total assets. In addition, a LICU is able to raise supplemental capital through subordinated debt and count that supplemental capital as net worth. Also, a LICU is able to take non-member deposits up to the regulatory limit of 50% of its total deposit base, plus reserves.

To qualify as a LICU a credit union must be able to document that over 50% of its members reside in low-income census tracts or are students. As of this writing, over 2600 credit unions have the low-income designation.

The announcement today will allow credit unions to also count military in the same way as they are able to count students toward the low-income calculation. While it may not take hundreds of credit unions over the 50% threshold, it could make a difference for some that are in the high 40% range to be able to add their military verified members to the LICU calculation.

Also important in this announcement is that this is the first real movement that has been seen in years toward making it easier to qualify for the LICU designation. Hopefully, this is an indication that the very tight FOM and LICU interpretations that the NCUA Office of Credit Union Resources and Expansion (CURE) have been taking in recent years that have put the federal charter at such a disadvantage to the state charter for many growth-oriented credit unions are beginning to relax.

If the CURE office truly begins to recognize that the “E” in CURE stands for “EXPANSION,” we may see some very positive movement in both the FOM and LICU arena for federal charters.

Associational SEGs. Underserved areas. Community charter expansions. Low-income designation flexibility. These are all areas where CURE has been non-expansive for many federal charters when their state counterparts have opened these opportunities more widely for state charters.

We would love to see this movement on the count of military personnel toward the LICU qualifying number become the first in a series of actions that will truly put the E back in CURE.

Too early to tell. But the action is positive. We just hope it is indicative of more to come.

CREDIT UNIONS BEGIN TO QUESTION WHETHER NINETY IS ENOUGH WHEN IT COMES TO THE EXTENSION DAYS FOR LOANS IN THE COVID-19 ERA

We are hearing from a number of our credit union clients concerned about whether, with the ongoing extension of many stay-at-home orders and the dramatically increasing unemployment numbers from the COVID-ERA, the resulting impact on their loan portfolio performance is going to be clear enough within 90 days to know where delinquency, charge-offs, further extensions, restructurings and provision for loan loss are headed.

All of the FFIEC agencies, including NCUA, seem to be quite comfortable with the 90-day forbearance approach that the regulators have announced. At first glance, it appears the 90 days will push back the clock from beginning to run on the charge-off clock until the 90 days are over for those members who were current on their loans headed into the distress of the COVID-19 era.

The question comes if, as seems to be the case where the timelines are headed, the economy is not ramped back up sufficiently within 90 days for members to begin making good on their loan payments again.

Job losses. Businesses closed. Payment schedules interrupted. Credit unions are calculating and projecting where this may be headed.

While no one knows for sure, the likelihood that 90 days is not enough is growing more and more clear.

In order to help us get a feel for the temperature at your credit union about this matter, we wanted to ask some questions of our Dollar Associates credit union clients. Your responses will be held in total confidence as to their source; however, the growing concern seems to beg for someone to get a gauge on where credit unions think this is going.

Therefore, if you or someone in a position of responsibility for monitoring such projections at your credit union would be willing to do so, I would like to request that you cut and paste the following questions, along with your answers based upon your own analysis as of today, into an email reply to me at [email protected].

1. Have you seen a discernable increase in delinquencies as a result of COVID-19? And, if so, primarily in what segment of your loan portfolio and approximately how much?
2. Does your analysis indicate that you believe a significant portion of these loans can be brought current within 90 days?
3. Do you believe 90 days of extensions followed by a required 120-day charge off period is sufficient to avoid considerable distress to your members and adverse impact on your credit union’s financial performance?
4. Is a second 90-day period of extensions (180 days total) more realistic or unnecessary before the 120-day charge-off period begins to run and/or TDRs are required?
5. Would you, if you believe 90 isn’t enough and a second 90-day extension period may be required for appropriate management of the COVID-19 impact on your loan performance, be willing to contact your trade association, the NCUA Board or both by email or letter asking them to consider implementing such a 180-day forbearance and extension period before the 120-day charge-off clock begins running?Again, we will protect your credit union’s name and your name. But we are hearing this concern raised so much over recent days that we felt the need to gauge what the sentiment is among our clients and determine if some type of advocacy strategy may be needed to help bring about the most reasonable and workable timeframes possible to benefit our members and protect our credit union financials.Please take the time to have someone at your credit union send us a cut and paste of these questions with your credit union’s answers. Once more, my email address for this confidential email is [email protected] next time. Stay safe..

Again, we will protect your credit union’s name and your name. But we are hearing this concern raised so much over recent days that we felt the need to gauge what the sentiment is among our clients and determine if some type of advocacy strategy may be needed to help bring about the most reasonable and workable timeframes possible to benefit our members and protect our credit union financials.

Please take the time to have someone at your credit union send us a cut and paste of these questions with your credit union’s answers. Once more, my email address for this confidential email is [email protected]

 

Until next time. Stay safe.