Credit Union Cheat Sheet

Interchange - the drama continues

2011-07-01T07:15:00.000-07:00

Yesterday, the Federal Reserve cut the maximum debit interchange fee to about $0.24 for the average debit card transaction, which was recently about $38. Currently the fee for the average size debit transaction is $0.44, so the new rule represents a 45% decline. However, this new $0.24 cap is much better for financial institutions than the initial $0.07 to $0.12 cap the Fed proposed back in December-2010. As a result, free checking may continue to be offered by big banks. If you recall, back in Feb-2011, the WSJ reported that some of the largest banks were starting to remove rewards programs on debit cards while others began charging $3 monthly fees to have a debit card.

Source: Brick and Associates

Forget Freddie Krueger. QE3 is scarier

2011-07-01T07:06:00.000-07:00

On 6-22-11, the Fed left the fed funds target at a range of 0.0% to 0.25% and continued to say they will hold rates at “exceptionally low levels” for an “extended period.” At this meeting, Federal Reserve officials made the following revisions to their economic forecasts for both 2011 and 2012: lower economic growth, higher
unemployment, and higher core inflation. This brings the Fed’s forecasts more in line with private economists. The Fed’s post-meeting statement said, “The slower pace of the recovery reflects in part factors that are likely to be temporary (our emphasis), including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan” The day after the Fed meeting the WSJ wrote, “Federal Reserve officials see the US economy settling into a disappointingly weak recovery this year and next, and say they have done all they are prepared to do to spur growth for now.” However, in his post-meeting press conference, Bernanke actually did leave the door open to a possible QE3 or other Fed action if the economy performs much worse than expected when he said the Fed would be “prepared to take additional action, obviously, if conditions warranted.” Following today’s end of the Fed’s $600b QE2 Treasury purchase program, the Fed’s balance sheet is currently $2.8 trillion, or four times its pre-crisis level. About $900b of their balance sheet is currently in Agency Passthroughs.

Generally speaking, the Fed’s broad goals for QE2 were to lower long-term Treasury rates, avoid deflation, and improve financial conditions in order to boost economic growth and lower the unemployment rate. In speeches last fall, Fed officials publicly said they wanted to boost stock prices in order for the so-called
wealth-effect to boost consumer spending. On a much more technical level, the Fed was trying to boost inflation expectations in order to avoid potential deflation. In general, inflation expectations have risen by about 100BPs since Bernanke first hinted at QE2 on 8-27-10. Inflation expectations over the next ten years
(10-year Treasury yield - 10-year TIPS yield) have risen about 100BPs since August-2010 to 2.5% currently.

Source: Brick and Associates

Freddie and Fannie wind down?

2011-03-21T09:56:00.000-07:00

The Treasury Department released a long-awaited “white paper” on 2-11-11 that calls for winding down these GSEs. Basically the Treasury wants the mortgage market to be mainly private and they feel it will take 5-7 years to transition to a new housing finance system. The Treasury said they would make sure
Fannie and Freddie have the resources they need to meet all their commitments. Note that the last three US Presidents have tried to reign in Fannie and Freddie but Congress has taken virtually no action thus far. Also, it was recently reported that last fall, the widely respected CEO of JP Morgan Chase referred to Fannie and Freddie
as "the biggest disasters of all time." Interestingly, after this “wind down” proposal, Fannie and Freddie spreads tightened. The reason was that the Treasury department wants Fannie and Freddie to shrink their balance sheets; less supply of bonds means tighter spreads, at least initially. Whether Fannie and Freddie can be wounddown remains to be seen. MBS investors, which actually determine mortgage loan rates, say mortgage rates will be much higher (say a few hundred BPs) without some form of government backing. Could politicians really handle mortgage rates of say 7% instead of say 5%, holding everything else equal?

From Brick and Associates, Inc Commentary

Inflation Watch

2011-03-21T09:36:00.000-07:00

The head of the European Central Bank said on 3-7-11 that he is ready to raise rates because inflation is too high. (That was before Japan’s earthquake.) Bill Gross, the biggest bond fund manager in the world, dumped all of his Treasury bonds in February because he feels the rates are too low and he wonders who will buy all the Treasury debt (at today’s low rates) when QE2 is over. He said Treasury yields are artificially low by about 150BPs because of QE1 and QE2, based on expected nominal GDP growth of 5% this year.

Exerpt from Brick & Associates Commentary

Economic stress continues but Midwest improves

2011-02-08T05:33:00.000-08:00

The nation's economic stress inched up in December because higher foreclosures outweighed lower unemployment, according to The Associated Press' monthly analysis.

Bankruptcy levels remained largely unchanged from November. But the depressed housing market took a toll. Foreclosure rates rose in 33 states, most sharply in Utah, New Jersey, Nevada and Arizona.

Most analysts expect the economy to gain momentum this year, in part because of a tax-cut package that lowers workers' Social Security taxes and puts more money in their paychecks. But two straight months of higher stress to end 2010 marked a setback after the nation's economic pain had eased since the start of last year, the AP Economic Stress Index showed.

The AP's index calculates a score from 1 to 100 based on unemployment, foreclosure and bankruptcy rates. A higher score signals more stress. Under a rough rule of thumb, a county is considered stressed when its score exceeds 11.

The average county's score in December was 10.4, up from 10.3 in November. Slightly more than 40 percent of the nation's 3,141 counties were deemed stressed, up slightly from November.

For all of 2010, economic stress eased in every state but five: Colorado, Florida, Georgia, Nevada and Utah. Stress fell most sharply in the Great Lakes states and the Southern states of Alabama, Mississippi and Tennessee. Those states have large manufacturing bases, and the AP analysis showed that stress dropped most in counties with large proportions of workers in manufacturing.

U.S. manufacturers are finally adding jobs after years of shrinking their payrolls. They added 136,000 workers last year, the first net increase since 1997. And in January, the manufacturing sector added 49,000 jobs -- the most in any month since August 1998.

From AP
Tom Dluzen

Bond Market Bubble

2011-02-07T05:55:00.000-08:00

Acccording to Martin D. Weiss, Phd., when the bond market bubble busts, the inevitable and immediate consequence is that interest rates surge — not only on bonds, but also on mortgages, auto loans, business loans, and almost every kind of financing imaginable.

If you hold fixed-income investments locked in at today’s low interest rates, you will almost definitely get hurt, regardless of what kind you own — Treasury bonds, Ginnie Maes, municipal bonds, mortgage bonds, corporate bonds, long-term bank CDs.

Either …

You’ll get stuck with miserable, below-market yields for years to come, or …
You’ll have to pay a tremendous price — losses in principal and/or stiff penalties — to switch to higher yielding investments.

At least consider selling your longer term investments while you can still get a small premium.

Howard Dean speaks to Tom Dluzen about the credit union industry

2010-06-08T07:04:00.000-07:00

Governor Howard Dean’s diverse background means he’s not just well-versed in the issuesof the economy and financial reform; It also means he offers a unique perspective on thecredit union industry, why credit unions are more valuable than ever, and what you, as acredit union leader, can do to prepare for the future.

Governor Howard Dean does more than voice hissupport of the credit union industry, he lives it.Dean and his wife, as well as both of their children,are proud members of the Vermont StateEmployees Credit Union.“I’m a big fan of credit unions. They are usually community-managed, and are pretty sensible. You don’t often hearabout them getting into the news, which means they aren’t doinganything bad most of the time,” says Dean. “So, it’s a verypositive institution for the country. We need more . . . .

Read the entire article

By: Tom Dluzen

Tom Dluzen interviews CNBC's Larry Kudlow

2010-04-13T05:58:00.001-07:00

Tom Dluzen interviews CNBC's Larry Kudlow for Credit Union Business Magazine

When the economy is booming, even ineffectually managed financialinstitutions can succeed. During a downturn, however, theseinstitutions, unprepared for challenges such as credit or interestrate risk, find themselves in an untenable situation and often facethe risk of failure. It is difficult to express the importance of a well thought-out strategic plan, including an Asset Liability Management(ALM) program that permeates virtually every decisionthe credit union makes. Less attention should be paid to what thecompetition is doing, and more consideration given to how a loanor deposit interest rate special will affect your balance sheet.For example, if you have too many long-term assets on thebooks, perhaps a marketing campaign to promote fixed-rate mortgagesis the wrong strategy, particularly when interest rates are athistoric lows. When economic times turn sour, forward thinkinginstitutions are usually in a much better position to “weather thestorm.”Arguably, proactive economic forecasting is more importanttoday than at any time in U.S. history. This means taking the time to follow this link to the entire article http://creditunionbusiness.com/archives/lki_310.pdf

Fed says inflation tame, no need to raise rates soon

2010-04-09T05:13:00.000-07:00

Federal Reserve policy makers last month saw an inflation slowdown across the U.S. economy that may persist in the coming months, tempering any need to reverse record-low interest rates. At the same time, the Fed said its pledge to keep the main rate low for an “extended period” wouldn’t keep it from taking action when needed to keep inflation in check, according to minutes of the March 16 Federal Open Market Committee meeting released April 7th. A few officials warned of the risks of increasing borrowing costs too soon.

The inflation outlook, coupled with Fed officials’ concerns about unemployment and long-term joblessness, signals Chairman Ben S. Bernanke and his colleagues are still looking for evidence of a sustained rebound from the worst recession since the 1930s. Fed staff economists reduced their 2010 and 2011 forecasts for inflation excluding food and energy, projections that were already below 2009 rates. “If you expect moderate growth and high unemployment and decelerating inflation, which is still likely to be the best guess at the moment, you won’t be interested in raising interest rates right now,” said former Fed Governor Lyle Gramley, a senior economic adviser at Potomac Research Group in Washington.

At the meeting last month, central bankers left the benchmark federal funds rate target, covering overnight interbank loans, in a range of zero to 0.25 percent, where it has been since December 2008. Fed officials cited the job market, lower home prices and tight credit as restraints on the recovery, the minutes said.

By Scott Lanman
April 7 (Bloomberg) --

Bankers not following BOA's lead on overdraft protection

2010-04-06T10:57:00.000-07:00

Don't expect community banks to follow Bank of America's lead and drop their overdraft protection programs in advance of upcoming regulatory changes.
Many smaller banks say they plan to keep offering such services because demand is strong and overdraft fee income is essential. Consultants say that these banks, unlike Bank of America, do not necessarily need to curry favor with the public by getting rid of the service.
Marcia Johnson, the corporate operations officer at Glacier Bancorp, a $4.1 billion-asset company in Kalispell, Mont., said it considered dropping overdraft protection on its 221,000 checking accounts. But overdraft fees generate considerable income, and the bank decided offering protection was better for customers than going without.
"We envisioned some of the situations — being in the grocery store line and having all our things on the belt and being declined," she said. "Our thought was that we wanted to go through the process to give them the opportunity to opt in."
At the $11.6 billion-asset TCF Financial Corp. in Wayzata, Minn., which has 1.7 million checking account customers, overdraft fees account for about 40 percent of net income, said Jason Korstange, director of corporate communications. The company does not plan any change in its program, other than notification and an opt-in form.
Consultants predict that community banks that embrace the rule change and reduce their fees may stand to gain the most in terms of revenue and accounts.
"Those banks that are lowering that price, they're going to win Bank of America's checking accounts," said G. Michael Moebs, the founder and principal of Moebs Services, a Lake Bluff, Ill., company that consults for 2,000 credit unions and banks. "I believe very strongly that community banks are going to pick that revenue up."
Under changes in the Fed's Regulation E — which enforces the Electronic Funds Transfer Act — by July 1 banks must obtain permission from new customers for automatic overdraft protection on nonrecurring debit card transactions and automated teller machine withdrawals.
By Aug. 15, banks must obtain opt-in approval from existing customers.
A Moebs survey found that, of the 11.4 percent of banks that have begun preparing for the rule change, a little more than half plan to raise overdraft fee amounts, 18.4 percent said they would cut fees and 11 percent would offer overdraft protection for the first time. About 13.5 percent planned to drop the service.
The Consumer Federation of America, in a press release last month, urged banks to follow Bank of America's lead "instead of launching a hard-sell campaign to persuade its customers to opt-in to the most expensive form of overdraft coverage

By Kate Davidson

How long are your agency investments safe?

2010-03-12T06:01:00.000-08:00

Politics, shaky economy create no rush to restructure Fannie and Freddie
By Zachary A. GoldfarbWashington Post Staff WriterThursday, March 11, 2010; A01

The federal government has spent the past half year seeking to roll back its emergency efforts at propping up the financial markets -- with the notable exception of its involvement in mortgage giants Fannie Mae and Freddie Mac.
As the government has pledged more and more money to cover the companies' losses, it has assured the public that planning was underway for overhauling the firms so the bailouts would end. As recently as December, the Obama administration said it expected to release a preliminary report on how to remake Fannie Mae and Freddie Mac around Feb. 1.
But no plan was produced, and in response to questions from lawmakers, Treasury Secretary Timothy F. Geithner clarified last month that it would be another year before the government proposes how to restructure the firms.
Sixteen months after they were seized to prevent their collapse, the companies remain wards of the state, running a tab that has now exceeded $125 billion in what has become the single costliest component of the federal bailout for the financial system.
Some members of Congress have complained that the huge public commitment is unsustainable. But the administration has been reluctant to start reforming Fannie Mae and Freddie Mac, officials and analysts say, because the firms in their current form play an essential role in supporting the housing market at a time when it is still under severe stress. As other financial firms have exited the market and credit has seized up, Fannie and Freddie have been behind the vast majority of mortgages made since the start of the financial crisis. The companies now own or back more than half of all U.S. home loans.
Moreover, the companies are helping the administration pursue policies designed to make new homes more affordable, ease the burden on struggling borrowers and direct funding to parts of the country especially hard hit by the downturn. Any initiative to remake the firms could distract energy from these programs or, in some cases, put an end to them.
The political angle
Nor is the administration eager to foster a debate over Fannie Mae and Freddie Mac in an election year, according to analysts and lawmakers. The pair have long been lightning rods for criticism by many Republicans, who call them an intrusion into the free market and a Democratic patronage haven. Many Democrats, even as they faulted companies' excesses, have defended the firms' role in fostering home ownership.
And with Obama's campaign to overhaul financial regulation facing resistance on Capitol Hill, administration officials don't want to add another divisive issue to the mix.
"We've obviously had our hands full, as has the Congress," said Michael Barr, assistant Treasury secretary for financial institutions. "We're just beginning to see some positive signs in the housing market, but we're not out of the woods yet and so we want to be careful to be sure that we had an appropriate, paced process."
Barr said Treasury officials have been meeting informally with their counterparts at the White House and the Department of Housing and Urban Development and exchanging policy papers to develop principles for overhauling Fannie Mae and Freddie Mac. These principles include, for instance, that the government ensure borrowers could still get mortgages even when the private market is no longer offering loans. But whatever replaces Fannie and Freddie, it should not be allowed to grow so large that its failure could threaten the financial system.
So far, Barr said, the administration has been too busy to build out the principles.
The government's extended involvement in the companies has opened the administration to criticism from both parties that it has failed to begin winding down Fannie Mae and Freddie Mac fast enough.
"They weren't planning to do much about it," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, in an interview. "They're busy, and it's hard and it's complicated and they're trying to put it off." Frank said he is "forcing" the issue by scheduling a committee hearing later this month, summoning Geithner and other officials to discuss options for reforming the firms.
Once among their strongest supporters, Frank has more recently called for their abolishment. But he said he still expects the government to play a role providing funding for low-income housing and subsidies for home ownership.
Future scenarios for reforming Fannie Mae and Freddie Mac range widely -- from total privatization to total nationalization. But no consensus has emerged over the best fix.
Spokesmen for Fannie Mae and Freddie Mac said their current focus is on keeping funds flowing into the mortgage market and helping distressed borrowers remain in their homes. The companies did not address the question of how they should be restructured.
The firms' regulator, the Federal Housing Finance Agency, agreed they have to help support the market and help struggling borrowers in the short-term. FHFA added that the administration and Congress must still come up with a long-term solution for the companies.
The record of Fannie Mae and Freddie Mac under government control has been mixed. The companies, with support from the Treasury Department and the Federal Reserve, have been able to keep mortgage interest rates low by providing substantial amounts of money to lenders. This has kept the struggling housing market from declining even more, in turn helping to stabilize the wider financial system.
The companies have also been tapped by the Treasury Department to rewrite the terms of home loans for struggling borrowers facing foreclosure. But this program -- carried out by Fannie, Freddie and other firms -- has had less success. Although 1.3 million borrowers have been eligible, only about one-tenth have had permanent mortgage modifications.
And keeping the companies solvent has been costly. To cover their losses, the firms have both said they will need additional federal money beyond the more than $125 billion already committed. They are ramping up purchases of bad mortgages in an effort to keep borrowers in their homes.
When the Bush administration seized the firms, it said it would make $200 billion available to them. The Obama administration a year ago doubled that figure, then decided late last year to offer them unlimited financial assistance as a signal to investors that the companies' solvency was guaranteed.
But critics warn this has given Fannie Mae and Freddie Mac a blank check.
"This idea of having money laying around that they can spend on whatever they think politically makes sense is certainly consistent with what we've seen from this administration," said Rep. Jim Jordan (R-Ohio), a member of the House Oversight and Government Reform Committee who has called for an investigation into the delay in planning for the companies' future. "This is just one more example of ridiculous government spending and huge losses to the taxpayer."
Delicate timing
Some analysts say it's an inopportune time to wind down the companies -- or even hint at major change -- while the housing market and economy remain in bad shape.
"Any suggestion now about future changes could destabilize the market," said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. "The U.S. mortgage market is so fragile that all Treasury needs to say is 'boo' and it could fall apart."
But time could be tight. Under the firms' agreement with the Treasury Department, they must shrink their mortgage portfolios every year, eroding their ability to support the market.
James Lockhart, a former top regulator of Fannie Mae and Freddie Mac, said the administration is erring by waiting another year to begin the reform process.
"The clock is ticking. We need to reinvigorate the private mortgage market and create something new and we know how long Congress takes," Lockhart said. "It's unhealthy to have as much government involvement in the mortgage market as we have in this country."

Barney Frank says Freddie, Fannnie bondholders not necessarily guaranteed

2010-03-09T05:10:00.000-08:00

U.S. Treasury says stands behind Fannie, Freddie:

Fri, Mar 5 2010 WASHINGTON, March 5 (Reuters) -
The Treasury Department on Friday reiterated its position that it is standing behind U.S. mortgage finance giants Fannie Mae and Freddie Mac.

"As we said in December, there should be no uncertainty about Treasury's commitment to support Fannie Mae and Freddie Mac as they continue to play a vital role in the housing market during this current crisis," the statement from the Treasury said.

The statement came in response to a question from a reporter after Rep. Barney Frank, the chairman of the House Financial Services Committee, caused a stir in the mortgage-backed securities market earlier on Friday by suggesting that Fannie Mae and Freddie Mac bondholders do not have the same guarantees as Treasury bondholders.

http://www.reuters.com/article/idUSWBT01369320100305

RESPA vs mortgage preapprovals - unintended consequences

2010-03-05T05:45:00.000-08:00

Respa Rule Has Lenders Balking on Preapproval

The new mortgage disclosure rule is upending the first step in the process of lending to homebuyers. Before shopping for a property, a prospective buyer typically gets a preapproval letter from a lender indicating how big a loan the person qualifies for. Real estate agents often ask for these letters so they can make sure the customer can afford the property before showing it.

Before writing the letters, lenders like to see proof of income, such as a pay stub or tax return. But under the Real Estate Settlement Procedures Act rule that took effect Jan. 1, lenders may not require such documents before giving the borrower a good-faith estimate of closing costs.
Since lenders are now being held to those estimates, they want to hold off on issuing them as long as possible. So some lenders are reconsidering or backing away from preapprovals. Without them lenders could end up wasting time on loan applications that fall out.

"If you don't have preapproval letters, then Realtors are going to have to show people houses whether they can afford them or not," said David Dickinson, president of Bankers Compliance Consulting Inc. in Central City, Neb.

Vicki Bott, the deputy assistant secretary for single family housing at the Department of Housing and Urban Development, said in an interview Tuesday that lenders are not barred from accepting documents, only from requiring them prior to issuing a GFE. "If a consumer wants to receive a preapproval they can choose to have their information verified," she said, and HUD will clarify this in future updates to its "frequently asked questions" about the Respa rule. (How inconvenient is that?)

Credit unions can take advice from Cisco Gen Y bank study

2010-02-23T10:35:00.000-08:00

Banks can expect to achieve revenue gains of up to 10 percent over the long term by catering to the online and social media tastes of Generation Y, according to a survey report released today by Cisco's Internet Business Solutions Group.

These younger consumers, over half of whom have Webcams and log on to YouTube five times a day, say they are eager to use banks' online tools for budgeting and savings. Though not yet high earners, Gen Y'ers are professing high levels of trust in financial institutions that deliver professional advice in areas like debt reduction and long-term savings, and do so through interactive or social media.

"They are interested in and are coordinating quite frequently with friends, family, and peers using different types of social media," said Jorgen Ericsson, global lead for Cisco IBSG's financial services practice that provides technology consulting to executives of global Fortune 500 companies.

"For the specific question — how do I shape my financial future — they really want to get professional advice" through social media. But other than pilot projects in online personal financial management, most banks are still not adequately speaking to Gen Y'ers through the channels they use. More than 33 percent of younger consumers, for example, would be willing to have a "completely" virtual relationship with their bank by interacting with advisors through online video, according to the Cisco survey, which polled 1,055 consumers across all age groups in the fall. That trend is at odds with "the general perception of many established bankers who believe that video is unappealing to customers and not mature technology," said Philip Farah, the director of the financial services practice at Cisco IBSG. Prior to the survey, Cisco IBSG officials were skeptical that banks, particularly large national institutions, would score well with younger consumers.

"We assumed they would be very distrustful of banks," for two reasons, Farah said: banks are not well connected with Gen Y's communication outlets, "and because of everything that has happened with banks in the role of the current economic crisis." But instead, 85 percent of consumers under 30 gave large financial institutions high marks as trustworthy outlets for offering financial advice, guidance and planning tools to manage debt and build savings. Cisco IBSG found that more than one-third of Gen Y'ers polled last fall feels a greater need for financial advice, compared to less than one-fifth of boomers and seniors. Farah noted that brand recognition played a strong role in favorable views. While young consumers want more financial guidance in a relationship, they aren't likely to wait around for a slow-moving bank to provide it. Twenty-six percent of Gen Y'ers said they'd be willing to switch banks to get these tools.

The survey also found that: 40 percent of younger consumers use personal financial management tools, ones primarily offered by their banks, to manage expenses, reduce debt and maximize savings; and Gen Y consumers are four times more likely than boomers to post a question about financial matters to a blog or online forum.

US Banker February, 2010

Small Business Loan Exams - Regulators Lighten Up

2010-02-23T06:11:00.000-08:00

The National Credit Union Administration, along with federal and state banksand thrift regulators, earlier this month spread the message that financial institutionsthat comprehensively review a small business’s financial condition before lending tothat business will not be subject to overly restrictive supervisory criticism.

Recognizing that many small businesses are having issues obtaining credit, theagencies said that their examiners “will not discourage prudent small business lendingby financial institutions,” will not “criticize institutions for working in a prudentand constructive manner with small business borrowers,” and, for the most part,“will not adversely classify loans solely due to a decline in the collateral value belowthe loan balance.”

The regulators also encouraged financial institutions to look beyond “nationalmarket trends” and base their lending decisions on a borrower’s “plan for the useand repayment of borrowed funds” while maintaining “an understanding of thecompetition and local market conditions affecting the borrower’s business

From CUNA Credit Union News Watch

Fed to clarify final rules under Regs E, DD

2010-02-22T06:34:00.000-08:00

WASHINGTON (2/22/10)--The Federal Reserve on Friday released a series of proposals that would clarify the portions of Regulation E, Electronic Fund Transfers, and Regulation DD, Truth in Savings, that address overdraft services.

The proposals are meant to "provide further guidance regarding compliance with certain aspects of the final overdraft rules," with a particular emphasis on portions that prohibit financial institutions from "assessing overdraft fees without the consumer's affirmative consent."
The proposal seeks to affirm that this prohibition "applies to all institutions, including those with a policy and practice of declining ATM and one-time debit card transactions when an account has insufficient funds."

According to the Fed, the Reg E proposal would clarify that the prohibition on assessing overdraft fees without the consumer's affirmative consent applies to all institutions that charge such fees for ATM and one-time debit card overdrafts. Credit unions that do not have formal overdraft programs are also covered by this opt-in requirement if they charge any fees for ATM and one-time debit card overdrafts.

The Fed also clarifies that the fee prohibition applies if a credit union falls under the regulation's exception for institutions that have a policy and practice of declining ATM and one-time debit card transactions when an account has insufficient funds.

The Reg E proposal also addresses sustained overdraft, negative balance, or similar fees associated with paying overdrafts and clarifies that an institution is not prohibited from assessing a fee when a negative balance is attributable in whole or in part to a transaction that is not subject to the fee prohibition.

The Fed's proposed amendments to Reg DD clarify the application of the rule to retail sweep programs and the required use of the term "total overdraft fees" for overdraft fee disclosures. The Fed has also added references to the Reg E amendments into Reg DD.

The proposals, which will be open for comment for 30 days after they are published in the Federal Register, would also make certain technical corrections and conforming amendments, the Fed added.

From: CUNA News Now

Credit Unions Step Up for Michigan's Business Loan Initiative

2010-02-16T13:45:00.000-08:00

Michigan Gov. Jennifer Granholm has unveiled a plan to partner with the Michigan Credit Union League to help small businesses. So far 30 credit unions have signed up to participate in the new partnership, called the Michigan Small Business Financing Alliance. They have committed to making $43 million in small-business loans as part of the initiative.

The state's Small Business and Technology Development Centers will coach the entrepreneurs, and state agencies will help in the loan-application process. Though the details of the plan are not expected to be finalized for about three months, Michigan officials noted that the loan funding would come from the credit unions, not the state. It was unclear why only credit unions had been included in the alliance.

From US Banker February, 2010

Does interest on Fed deposits spell the end of the Corporates?

2010-02-16T05:37:00.001-08:00

In October 2008, Congress granted the Fed power to pay interest on both required and excess reserves for the first time. Before then, the Fed never paid any interest on bank reserves. After the WesCorp and US Central debacles and the resulting required shift towards safer and lower yielding investments, it's unclear how the corporate credit unions can continue to compete with the Federal Reserve. A handful of credit unions have already made the jump from a corporate to the Fed.

This new policy is a game changer. Before, the Fed could only raise interest rates by making reserves scarce relative to demand. This was done by "open market sales," or selling government bonds and debiting the reserve accounts of banks. The reduction in the supply of reserves sent the interest rate on reserves upward. That is how the Fed controlled the interest rate on the all-important Federal Funds Market, the market for overnight reserves that the banks lend each other to satisfy both the Fed's reserves requirements and their own liquidity needs.

Now the Fed can maintain a large quantity of reserves to satisfy the banks' desire for liquidity and still fight inflation by simply raising the interest rate that its pays on reserves without removing. The interest rate must set the floor to the Federal Funds and other short-term rates since no financial institution would loan out reserves in the Fed Funds market at a lower rate than they can receive on deposit from the central bank. The Fed can now raise rates and maintain the liquidity of our banking system.

(Derived from yahoofinance.com article)

A heads-up worth repeating. Examiners worry about interest rate risk

2010-02-11T06:00:00.000-08:00

If you read this blog on a regular basis, you probably noticed that I stay up nights obsessing about interest rate risk.

An interagency advisory issued by the Board of Governors of the Federal Reserve System and other federal regulators reminds institutions of supervisory expectations on sound practices for managing interest rate risk (IRR). Yes, it is directed at banks, but, at the risk of stating the obvious, it equally applies to credit unions.

The advisory does not constitute new guidance, says the FRB. It reiterates basic principles of sound IRR management that each of the regulators has codified in its existing guidance, as well as in the interagency guidance on IRR management issued by the banking agencies in 1996. The advisory highlights the need for active board and senior management oversight and a comprehensive risk-management process that effectively measures, monitors, and controls IRR.

The advisory targets interest-rate risk management at insured depository institutions.

One-Fifth of U.S. Homeowners Owe More Than Properties Are Worth

2010-02-10T13:15:00.000-08:00

More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter as the number of houses and condominiums lost to foreclosure climbed to a record, according to Zillow.com. In the fourth quarter, 21.4 percent of owners of mortgaged homes were underwater, up from 21 percent in the previous three months and down from 23 percent in the second quarter, the Seattle-based real estate data provider said.

More than one in 1,000 homes were repossessed by lenders in December, the highest rate in Zillow data dating back to 2000. Underwater homes are more likely lost to foreclosure because their owners have a harder time refinancing or selling when they get behind on loan payments. U.S. home values dropped 5 percent in the fourth quarter from a year earlier, the 12th straight quarter of year-over-year declines, Zillow said. “While the next few months are likely to bring further home value declines in most markets, we do expect to see a national bottom in home prices by the middle of this year,” Zillow Chief Economist Stan Humphries said in a statement. “Thereafter, home values are likely to bounce along the bottom with real appreciation remaining negligible for some time.”

There were 2.82 million foreclosures in the U.S. last year, according to RealtyTrac Inc., the most since the data provider began compiling figures in 2005. The number may rise to 3 million in 2010, the Irvine, California-based company said last month. Bank sales of foreclosed properties accounted for a fifth of all U.S. home sales in December, Zillow said. Such transactions made up 68 percent of sales in Merced, California; 64 percent in the Las Vegas area; and 62 percent in Modesto, California, the company said. Almost 29 percent of homes sold in the U.S. went for less than their sellers originally paid for them, Zillow said. The closely held company uses data from public records going back to 1996. Its mortgage figures come from information filed with individual counties.

Bankers worry about change in credit union business lending cap

2010-02-09T11:43:00.000-08:00

Credit unions are feeling hopeful about finally persuading Congress to let them make more loans to small businesses. These days the rhetoric on Capitol Hill is all about creating jobs and getting the economy going again. By arguing that they can help, credit unions are gaining support in what has been a decade-long quest to expand their business lending.

Just before Christmas, Sen. Mark Udall, D-Colo., introduced a bill to increase the member business-lending cap to 25 percent of a credit union's total assets, from the current 12.25 percent. Perhaps even more significantly, the bill also would exempt loans under $250,000 from counting toward the cap; only loans under $50,000 are exempt now. The bipartisan co-sponsors include Sen. Charles Schumer, D-N.Y., a powerful new ally for the credit union effort.

Though the banking industry has fought off similar bills before, this one is a notable advance for credit unions because it is supported by so many small-business groups and think tanks that previously opted to avoid the issue. At least 17 of them endorsed the bill, including the National Association of Realtors, the National Small Business Association and the National Association of Manufacturers.

"In the past it was very difficult to get some of these associations to enter the fray because they just didn't want to bother with it," says John Magill, senior vice president of legislative affairs for the Credit Union National Association, an industry trade group. But if they preferred not to take sides before in what they considered to be a turf war between banks and credit unions, now the potential benefit of easing the credit crunch has won them over, Magill says. "All of these associations feel credit should be flowing more freely to small businesses." He says some banking industry lobbyists and other Washington insiders seemed "fairly stunned" by the list of organizations backing the bill, with the National Association of Realtors being viewed as a particular coup, since it commands formidable grassroots support. "I think that really raised eyebrows on Capitol Hill."

Still, the banking industry is doing what it can to slow the momentum. The Senate bill largely mirrors one in the House from Rep. Paul Kanjorski, D-Pa., that also has bipartisan support, and in early December, the American Bankers Association sent a letter to House Speaker Nancy Pelosi, D-Calif., and chairman of House Committee on Education and Labor, George Miller, D-Calif., urging them to oppose Kanjorski's bill. The letter, which was co-signed by banking trade groups in every state, argued that credit unions lack expertise in business lending and that an economic crisis is no time to give them more lending authority. It also reiterated the banking industry's contention that credit unions should give up their tax exemption if they stray from lending to consumers of modest means.Keith Leggett, the ABA's chief economist, says recent congressional testimony from the credit union industry's own regulator should give members of Congress pause about creating more competition.

In testifying before a Senate committee in October, Deborah Matz, chairman of the National Credit Union Administration, said a review of 71 troubled credit unions found that 62 of them had member business loans, with 12 of them having gotten into the sector since 2005. These credit unions, which average $1.1 billion of assets, had a higher concentration of member business loans than the overall industry, and delinquencies on those loans were at 8.34 percent as of June.

But the political focus is on jobs, and that's what credit unions are promising. With a higher cap, the credit union industry says it expects to extend an additional $10 billion of loans to small businesses in the first year, creating an estimated 108,000 jobs at zero cost to taxpayers.
"Why in the world stop credit unions from trying to help?" asks Magill. He doubts the banking industry will get far with its arguments to derail the credit union bill. "Given their own history of late, and their inability to lend, it's going to be very difficult for them to say, on the safety- and-soundness argument, we shouldn't be allowed to enter this arena and help the American economy."

In the past credit unions struggled to get attention in the Senate, but had more success in the House, with Kanjorski repeatedly introducing a version of his current bill over the years. Then Schumer announced in the spring that he would take up their cause. "With so many large banks in bad shape," credit unions need to be able to offer more small-business loans, Schumer said in a press release at the time.

"The situation facing these businesses right now is much worse than a matter of them simply being denied new loans. They are being strangled by having existing lines of credit pulled. A threat like this to small businesses could upend the livelihood of millions of workers and be catastrophic for the larger economy."

President Obama himself has stressed the need for more small-business lending in two separate meetings with bankers in December. He grabbed headlines by hauling a dozen chief executives of large financial firms to the White House and urging them to take a second look at any applications for business loans that they had previously denied. The following week, he welcomed 11 community bankers and one credit union executive to a more cordial meeting, where he encouraged them to do more for small businesses. But several attendees say the president never brought up the issue of the credit union cap. Magill concedes that other pressing issues have consumed banking committee members in both the House and the Senate over the past year, but he interprets the newly introduced Senate bill as a significant step forward.
"This got put on the back burner, and now we are confident it's on the front burner," he says. "I think this will give incentive to the House to focus, once it sees a strong lineup on the Senate side."

Magill says Schumer - whom he describes as a master tactician - is helping shepherd the bill. "With small-business lending almost, if not completely, at a halt these days, I think he felt the time was right." Magill wants to get the language about credit union business lending added to the jobs bill to be considered in the Senate early this year. But Leggett says expanding business lending for credit unions is "still very controversial" politically. Legislators declined to attach the proposed higher lending cap to a jobs bill this fall because "they didn't want to have something associated with that bill that would detract from the votes." Leggett also suggests the projected $10 billion increase in lending so often touted by credit unions is misleading.

The estimate is from CUNA economists, based on interest from credit unions close to the cap, as well as those that were scared away from getting into the loan segment because of it.
"The question is: does this really represent a net increase in business lending or does it represent $10 billion of business lending that goes from for-profit banks to not-for-profit credit unions?" Leggett asks. Leggett points out that only business loans a credit union makes to its members and keeps in its portfolio count toward the current cap. Any business loans that a credit union buys, whether whole ones or participations, are excluded, as are any portion of its own member business loans that it opts to sell.

So a significant amount of business lending by credit unions - about 19 percent, based on September data - is already exempt. (The industry reported roughly $27 billion of member business loans, and $6.65 billion of nonmember business loans. Nearly 700 of the 8,000 credit unions nationwide hold nonmember business loans.)

Even more, Alan Theriault, the president of CU Financial Services, a Portland, Maine, consulting firm that advises credit unions on entering new business lines and switching charters, says excluding any loans up to $250,000 from counting as member business lending would render the cap virtually meaningless. He considers such expansion of credit union business lending ill-advised.

"It allows credit unions to have a very large portfolio of commercial loans, much more than 25 percent," Theriault says. "It really gives credit unions the opportunity to convert from being a consumer lender to being almost a pure commercial lender." He thinks this ultimately could undermine support for the legislation, as it could be interpreted as going too far. Still, both Leggett and Theriault concede that the credit unions could benefit from the zeitgeist.
"I do think the climate is very politically charged and this could gain momentum," Leggett says.

Central Banks May Face Race To Hike Interest Rates

2010-01-26T09:14:00.001-08:00

Central Banks May Face Race To Hike Interest Rates

http://www.cnbc.com/id/34844548?__source=RSS*tag*&par=RSS

Source: CNBC

Federal deficit in the danger zone

2010-01-25T07:45:00.000-08:00

Time is running out for attacking the deficit. The danger, once distant, is now close. Soaring deficits are jacking up the national debt, resulting in higher interest rates and raising the odds of an even weaker dollar, which would stunt economic growth and lower Americans’ future standard of living.

Spending is out of control. For years it has averaged about 20% of GDP. This year, it’ll be about 25%. Some of that is due to spending on war in the Middle East as well as efforts to cushion the effects of the recession through higher unemployment benefits, aid to banks and state governments, spending on roads and highways, and more. Plus, tax receipts diminished as the economy shrank.

But even after the economy fully recovers, outlays won’t ebb. The growing ranks of retirees mean that Medicare and Medicaid costs will keep soaring, even if health care reform successfully curbs increases in the cost of care -- an iffy proposition at best.

Such entitlement programs -- those that lawmakers don’t control on a year-to-year basis but that run on a sort of autopilot -- account for 54% of federal spending. And they’ve climbed 6.4% on average a year since 2000. When it comes to spending that it can control annually, Congress has shown little restraint. Discretionary spending, which includes defense and an array of domestic programs from national parks to the FBI, has risen over the past decade at an average of 7.5% a year.

The result is an annual deficit that in fiscal 2009 was equal to nearly 10% of GDP, the largest since it hit 21.5% in 1945 at the end of World War II. What’s worse is that a mountain of debt will continue to pile up even if the politicians in Washington manage to keep a rein on spending and trim the yearly deficit. In fiscal 2009, federal debt held by the public jumped by a third, to $7.8 trillion. At the end of fiscal 2008, debt held by the public measured 41% of GDP. By 2014, it’ll equal a whopping two-thirds of GDP.

The interest payments on the debt will be staggering. They could soar to as much as $800 billion a year by the end of this decade, gobbling up 16% of the total budget. Indeed, servicing the debt may become the single biggest item in the federal budget, surpassing Medicare, defense and Social Security.

That will raise the cost of borrowing for everyone -- households and businesses alike. And it threatens to derail the U.S. economic engine. A jump in the debt from 40% of GDP to 60% would boost the rate on Treasury bonds by a full percentage point. Other interest rates, such as those for mortgages and corporate bonds, would follow. And if the U.S. loses its top credit rating -- until recently, an unimaginable event -- interest rates will increase even more. China, Saudi Arabia and other cash-rich nations would insist on higher returns to keep buying U.S. Treasuries at auctions.

Foreign nations, which own about half of the $7.8 trillion public debt, don’t need to sell to make waves. They could simply slow their rate of buying. That might tempt the Federal Reserve to buy debt in order to stave off a rise in interest rates. But that’s no way out. “Countries have tried that and seen double-digit inflation,” says Rudy Penner, former director of the Congressional Budget Office, now with the Urban Institute. “Even the tiniest probability of that has to be avoided.”

There are no easy fixes. Diane Swonk, chief economist with Mesirow Financial, says, “We’re going to have to cut overall spending and raise overall taxes.” In fact, solving the problem will take unparalleled restraint, and determination by elected officials of all stripes.

The US dollar and looming interest rate risk

2010-01-23T06:37:00.000-08:00

Just two months ago, economists were predicting a protracted fall in the strength of the US dollar. But since then, the the fundamental and technical evidence points to a rebounding U.S. dollar, at least in the short term. This is significant because continued demand for the relative safety of US Treasuries could mean interest rates should remain on the low side for the foreseeable future. Maybe six months.

No alternatives - flight to safety

If the US economy was isolated from the rest of the world, US government (record deficit-spending) policy responses to the financial crisis should send the dollar into a free-fall. But economic problems are global and threaten the sustainability of a global recovery. That makes investors nervous, and when they’re nervous, they prefer to own US dollars. Global investors responded to the uncertainty by plowing money into the U.S. Treasury market. Currency values are determined as compared to the value of other currencies. With that in mind, the dollar is positioned to strengthen. However, at the risk of stating the obvious, things could change rather quickly once the global economy improves.

A January 2010 Bloomberg poll indicates of how quickly perception can shift. According to the poll, investors have turned bullish on the U.S., a stark contrast from the views just a quarter ago. It turns out the rest of the world is in poor economic shape. Comparatively speaking, the U.S. and the dollar appear stronger for the time being.

Interest Rates

Granted, there is no clear correlation between US dollar and nominal interest rates. But as long as there is demand, Treasury rates, which affect mortgage and other borrowing rates, probably won't need to rise as quickly in order to attract investors. That said, record deficits harbor the risk of inflationary pressures. Higher rates inevitably follow.

If you held a gun to my head and forced me to make a prediction, I'd say Treasury rates should stay steady for about six months before beginning a prolonged rise. This gives financial institutions a small window of opportunity to get their balance sheets in order. Interest rate risk looms as the next major hazard to their bottom line, as well as to the US banking system.

Tom Dluzen

Do bankers have good points opposing credit union increase in business lending cap?

2010-01-21T13:57:00.000-08:00

Bankers oppose increase in business lending cap. Do they have a good point?

Read their letter to the US Senate

Also see: Per examiners, commercial property is the biggest risk below

Commercial Property Is Biggest Risk, U.S. Bank Examiners Find

2010-01-21T12:41:00.000-08:00

By Craig Torres
Jan. 6 (Bloomberg) -- Losses on commercial real estate loans pose the biggest risk to U.S. banks this year, troubling smaller lenders while unlikely to threaten the entire financial system, U.S. bank examiners concluded during a review.
“Losses from commercial real estate will be quite high by historic standards,” said Eugene Ludwig, former Comptroller of the Currency who is now chairman of Promontory Financial Group, a Washington-based consulting firm to financial institutions. “Hundreds of banks will fail or will be resolved over the course of the cycle.”
Federal Reserve Governor Elizabeth Duke said in a Jan. 4 speech that credit conditions in commercial real estate “are particularly strained.” Fed Governor Daniel Tarullo cited commercial real estate as one of the “key trouble spots” in congressional testimony in October after the Fed stepped up a review of banks’ exposure to such loans.
The failure of loans backing malls, hotels and apartments may impede the U.S. recovery as small- and medium-sized banks reduce lending and conserve capital to absorb losses, analysts said. Tight credit could slow the cycle of investment and hiring that is critical for sustained growth, they said.
Fed Chairman Ben S. Bernanke, in a Dec. 7 speech, cited tight credit among “formidable headwinds” likely to hinder growth. Total loans and leases by banks in the U.S. fell to $6.79 trillion in November from $7.23 trillion in the same month a year earlier, according to Fed data.
More Than Doubled
The default rate on commercial mortgages held by U.S. banks more than doubled to 3.4 percent in the third quarter, according to Real Estate Econometrics LLC, a property research firm in New York. Default rates in the first three quarters of 2009 have been the highest since 1993, according to the firm.
Losses on the debt will “place continued pressure on banks’ earnings” because collateral values have fallen, Jon Greenlee, associate director of the Fed’s bank supervision division, said in Nov. 2 testimony to the domestic policy subcommittee of the House Committee on Oversight and Government Reform.
Banks and investors held about $3.5 trillion of commercial real estate debt in June 2009, with about $1.7 trillion of that total on the books of banks and thrifts, according to Fed data. About $500 billion of the loans will mature each year over the next few years, Fed officials say.
Regional banks are almost four times more concentrated in commercial property loans than the nation’s biggest lenders, according to data compiled by Bloomberg on bailout recipients.
Vulnerability of Banks
Investors have recognized the comparative vulnerability of smaller banks. The KBW Regional Banking Index, which includes shares of Old National Bancorp of Evansville, Indiana and Glacier Bancorp Inc. of Kalispell, Montana, fell 24 percent last year compared with a 3.6 percent decline for the KBW Bank Index, which includes shares of JPMorgan Chase & Co. and Citigroup Inc.
“The strong get stronger and the weak get weaker,” said Joel Conn, president of Lakeshore Capital LLC in Birmingham, Alabama, which specializes in financial stocks. “It is very difficult to come up with a scenario where earnings get anywhere back to normal for small banks with large commercial real estate exposures.”
Fed officials stepped up reviews of commercial real estate loans at banks last year. The Fed is focusing on banks smaller than the 19 largest lenders examined in May. Those institutions held assets exceeding $100 billion.
Defaults among prime borrowers for residential mortgages will probably accelerate this year, according to Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.
Hold to Plans
Still, the Fed will probably hold to its plans to finish the purchase of $1.43 trillion in mortgage-backed securities and housing-finance debt by March 31, barring a reversal in the economy or big rise in mortgage rates, Fed watchers said.
“Clearly, the market would react quite negatively if the Fed said, ‘We are changing our mind,’” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut, and a former Richmond Fed researcher.
Bernanke has said the purchases have helped lower mortgage rates and stabilize the economy. The Fed, which began in September to slow down the purchases, still has about $139 billion of mortgage-backed securities left to buy out of $1.25 trillion, and $15 billion of federal agency debt out of $175 billion.
Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ, Ltd. in New York, said Fed officials will monitor mortgage rates and the difference in yields between mortgage-backed securities and Treasuries.
‘Opposite Direction’
“They will not extend it without seeing a bad outcome,” Rupkey said. “Everything seems to be moving in the opposite direction” of increasing purchases of the securities, he said.
St. Louis Fed President James Bullard said in November that the central bank should retain the flexibility to respond to any weakening in the economy by extending beyond March its authority to buy mortgage-backed securities and agency bonds.
Mortgage rates in the U.S. rose last week to 5.14 percent, the highest since August, Freddie Mac said Dec. 31. That’s still close to the record low of 4.71 percent reached in the week ended Dec. 3 and the average 5.04 percent for 2009. Rates averaged 6.05 percent in 2008 and 6.34 percent in 2007.
An increase in rates to 6 percent may prompt the Fed to reconsider ending purchases of mortgage-backed securities, Rupkey said.

Opinion - Man on the street - Fed Bans Debit Overdraft Fees

2010-01-13T14:19:00.000-08:00

The Federal Reserve is prohibiting banks from collecting overdraft fees on purchases paid with a debit card unless customers opt in to programs that guarantee their balance-exceeding transactions go through. What do you think? See some responses

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Yields on the benchmark U.S. 10-year note to rise over the next 6 months

2010-01-13T13:36:00.000-08:00

Yields on 10-year notes will end 2010 at 4.14 percent, the highest level since June 2008, according to a Bloomberg News survey. The yield on the benchmark 3.375 percent security due in November 2019 rose 4 basis points on January 13th, 2010. Mortgage rates are likely to follow. Here's the link http://bit.ly/6EWYJp

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Blogger Tom Dluzen interviews Steve Forbes for Credit Union Business Magazine

2010-01-11T05:58:00.000-08:00

Steve Forbes, Chairman and CEO of Forbes, Inc., http://www.forbes.com/, took time out of his very busy schedule to speak with me about his views on the economy and how current economic trends might affect the credit union industry. Mr. Forbes touched upon major issues such as interest rates, the credit markets, the U.S. dollar, and proposed “mark-to-market” accounting rule changes.

Interest rates are affected by a myriad of pressures, including inflation, deflation, the relative strength (or weakness) of the U.S. dollar, availability of credit, record deficits, foreign and domestic demand for U.S. Treasurys, to name just a few. Interest rate risk for credit unions is always lurking in the background, but because of the current environment, the threat may be greater than normal. It is a complicated issue, but Steve . . .

Please go to Page 33 of Credit Union Business Magazine to read the entire article.

Congress - yet another swipe at credit cards?

2010-01-06T06:16:00.000-08:00

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Congress - another swipe at Credit Cards? Read the WSJ Article http://online.wsj.com/article/SB10001424052748704905704574622722184163510.html?mod=googlenews_wsj

Personal bankruptcies rising fast

2010-01-06T05:55:00.000-08:00

Follow the Cheat Sheet on Twitter - tdluzen

Personal bankruptcies rising fast - Wall Street Journal http://online.wsj.com/article/SB126263231055415303.html?mod=WSJ_hpp_MIDDLTopStories

Higher Jumbo CD rates could foretell the future

2010-01-05T08:36:00.000-08:00

This index is the 12 month average of the monthly average yields of 3 month certificates of deposit. In plain English, this index is calculated by averaging the previous 12 rates of the 3 month CD rate. The 3 month CD rate used is the rate publish monthly by the Federal Reserve. Because this particular index is an annual average, it is more steady than straight CD rates. As you can see, rates can move rather quickly over the course of a year.

Anecdotally speaking, I've noticed that over the last month or so, Jumbo rates are moving up. As members gain more confidence in the stock market, there could be more competition for deposits that could precipitate a move towards higher rates overall.

Follow the Cheat Sheet on Twitter!

2009-12-22T08:19:00.000-08:00

I will continue to post new articles on this blog from time to time.

However, in an effort to be more timely in this ever-changing environment, most posts will be made via Twitter. Click on http://twitter.com/tdluzen

to follow my twits.

Reporting for Discharges of Indebtedness to the IRS

2009-12-10T08:00:00.000-08:00

For reporting purposes, the IRS considers indebtedness discharged on the occurrence of an identifiable event indicating the debtor will never have to pay the indebtedness. If appropriate, the lender may report discharges of indebtedness if the indebtedness meets one of the following tests:

A debt discharged in bankruptcy, but only if the debt was for
business or investment purposes;

A debt discharged by an agreement between the financial
institution and the member to accept an amount less than the
full amount of the debt;

A debt that the credit union decided not to pursue through
collection activity and discharges;

A debt on which a 36-month, non-payment testing period has
expired;

A debt extinguished because the statute of limitations the
debtor raised as an affirmative defense has expired;

A debt canceled or extinguished in receivership or foreclosure
in state or federal court;

A debt canceled or extinguished when the financial institution
elects foreclosure remedies; or

A debt canceled or extinguished, rendering it unenforceable in
probate.

(Note: A bookkeeping entry to charge off a loan does not by itself
qualify as an identifiable event.) Lenders should consider the
trigger points above in conjunction with the charge-off to
determine whether a discharge has occurred.
Additional reporting requirements include:

The discharge must be $600 or more, no aggregation;
lenders must provide copy of 1099-C to the borrower by
January 3 1 of the year following discharge; and

lenders must provide original of 1099-C to the IRS by
2/28 of the year following discharge.

Lenders must keep records of the return or the ability to
reconstruct the required data for four years from the required filing
date. For more information, review Section 6050.P of the Internal
Revenue Code.

Source: the NCUA

Corporate credit union program gets another extention

2009-11-24T13:07:00.000-08:00

ALEXANDRIA, Va. (11/24/09) The Temporary Corporate Credit Union Share Guarantee Program (TCCUSGP) has received another extension from its parent agency, the National Credit Union Administration (NCUA). The agency is pushing the expiration date past the current sunset of Dec. 31, 2011 to let the program run until . . .

Read the entire article

NCUSIF assessment may be much higher in 2010

2009-11-20T06:48:00.000-08:00

CU 2010 assessment may be 0.15%-0.4%
ALEXANDRIA, Va. (11/20/09)—The credit union assessment to fund the National Credit Union Share Insurance Fund (NCUSIF) and the corporate credit union stabilization fund could range from 0.15% and 0.4% of insured shares in 2010, National Credit Union Administration (NCUA) estimated Thursday.
At the agency's open board meeting, Melinda Love, director of examination and insurance, predicted that NCUSIF losses for the coming year could range from $450 million to $1.68 billion—a substantially wide range. Those losses, she said, could require a 0.1% to 0.25% premium, And the assessment to fund the NCUA's Corporate Stabilization Fund could be between 0/05% and 0.15% of insure shares.

From CUNA News Now

Communists lecture Obama on U.S. economy

2009-11-18T11:22:00.000-08:00

It could be an indication that the Obama administration's economic policies are on the wrong track when communist China is offering the best advice regarding the U.S. economy.

According to the Wall Street Journal ,Liu Mingkang, chairman of the China Banking Regulatory Commission, said that a weak U.S. dollar and low U.S. interest rates had led to "massive speculation" that was inflating asset bubbles around the world. . ." "Bubble" :sound familiar?

The ironic part . . . they are probably . . .
Read the entire article here

Some Credit Union Concerns Going Forward

2009-11-17T08:40:00.000-08:00

The NCUSIF / Corporate CU restructuring plan will cost .15 basis points per year over the next 7 years, probably more. In addition, some corporates are writing down their capital; this will be handed down to natural persons CUs and cannot be recovered.

Increasing loan losses related to job losses and sluggish economic growth continue to be a concern. Unknown how deep the problem can go.

Interest margin pressures are a real concern. Deposit rates can move up much faster than loan rates.

Mortgage rates are being manipulated and are artificially low right now. Jack Brick’s (Brick and Associates) challenge question: “Do you really want to play in this Game”? Low yielding long-term mortgages and mortgage backed investments present risk of both lost income and market value risks when rates move north.

Bankruptcy “Cram-down” proposals were defeated in Congress for now, but may be coming back.

Interest rate risk is a major concern. Credit unions with a large percentage of long-term loan and investment assets are at risk. Brick cautions against reaching for yield in a low-yield environment.

Business loans can be an opportunity or an emerging problem. Brick warns against doing business loans as a “Hail Mary Pass” out of desperation for net income. Few CUs have the expertise and the market is risky as ever right now.

Loan modifications in problem loans – credit unions are finding that they don’t usually work unless there is underlying good credit, at least 20% equity in the collateral, etc.

New branches now take about ten years to start being profitable - be realistic in your analysis. Switching financial institutions is not a high priority with anyone, says Brick; few will switch because of a new facility.

Liquidity can be a major risk. Money Market accounts are projected to exceed recent 4.5% 15 year mortgages at some point. Selling mortgages or mortgage backed investments later will not be an option to fix a liquidity problem.

The pace of new regulations has been picking up with no abatement in sight. This can be a drag on efficiency and earnings.

President Obama hosted a conference of all the Native American tribes. I know the U.S. economy's in bad shape, but Obama told the Indians, 'Look, you can have the country back. Okay, fine.' –Jay Leno

The top ten economic concerns. A quick overview

2009-11-17T08:36:00.000-08:00

The Dow Jones Industrial Average has begun to recover. Financial Institutions may see deposits flow out and back into the stock market. When confidence improves, investors are willing to accept more risk.

The ISM Manufacturing Index hit it’s lowest point in decades. However, the index has rebounded and has moved to over “50”. This is indicative of an expanding economy.

The Feds are purchasing debt and, in effect, printing money to finance record deficits. Once “slack” in the economy is . . .
Read the entire article here

New Overdraft fees Rule. Per Yahoo Finance

2009-11-12T09:34:00.001-08:00

WASHINGTON – Banks will have to secure their customers' consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.
The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can't spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.
For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.
Under the Fed's new rule, which will take effect July 1, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don't "opt in," any debit or ATM transactions that overdraw their accounts will be denied, Fed officials said.
Many consumers do want checks and regular electronic bill payments to be covered in the event of an overdraft, Fed officials said. As a result, those transactions aren't covered by the rule.
Banks earn as much as $25 billion to $38 billion annually from overdraft fees, Fed officials said, but that total includes check overdrafts.
Many larger banks, including Bank of America Corp., JPMorgan Chase & Co., U.S. Bank and Wells Fargo & Co. began instituting similar "opt-in" plans in late September after coming under fire for the fees.
But consumer groups and other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair, said new rules were still necessary to ensure smaller banks followed suit.
Many lawmakers have criticized the Fed for failing to provide sufficient consumer protection in the past, a defect they say contributed to last year's financial crisis. Sen. Christopher J. Dodd, D-Conn., on Tuesday introduced a bill that would strip the Fed of its consumer oversight.
Dodd also proposed legislation last month that would have imposed limits similar to the Fed's on the banks' ability to charge overdraft fees.

Why the sinking U.S. dollar is helping the recovery and the stock market

2009-11-07T18:07:00.000-08:00

If you have been paying attention to the relative strength of the U.S. dollar, you may have noticed that as the dollar slides, the stock market rises. And with no end to deficit spending in sight, the dollar's decline may have a way to go.

While the Obama administration and Treasury Secretary Henry Paulson claim to support a strong dollar, they may actually support a weak currency because, at least in the short term, it helps the U.S. economy more than the strong one they publicly endorse. The dollar has declined by . . .

click here to read entire article

Good news bolsters the stock market, more to come?

2009-11-05T13:32:00.000-08:00

The Labor Department reported that newly laid-off workers seeking unemployment benefits fell to 512,000 last week, the lowest level since January and fewer than economists had forecasted. The report also said, though, that many employers remain reluctant to hire.The report fanned optimism that the government's monthly report on employment Friday might prove
click here for entire article.

The story behind the Feds decision to leave rates unchanged

2009-11-05T06:38:00.000-08:00

Yes, the Feds kept their benchmark overnight lending rate at between zero and 0.25 percent, where it has been since December. But as always, there is much more to the story. A few things officials said and their potential impact on the economy:

The Fed completed its $300 billion program of purchasing Treasuries last month. By purchasing Treasuries, the Fed was monetizing the debt and, figuratively speaking, printing money. By putting this excess liquidity into the economy, inflation becomes more of a threat. In addition, the Feds are actually in competition with investors who purchase treasuries. A potential side effect is that
click here to see the entire article

Mortgage Rates May Hit 6% in March

2009-11-04T08:39:00.001-08:00

According to the Kiplinger Letter, 30 year fixed mortgage rates will be in the neighborhood of 6% this Spring, even higher if . . . click here to see entire article

You'd Better Contact Your Corporate. More Losses at US Central.

2009-11-02T08:32:00.000-08:00

On October 30th, U.S. Central (USC) released their financial statements for the third quarter. Their cumulative losses over the last three years is now up to $2.6 billion. If your Corporate Credit Union has considerable investments (capital) with USC, then it's a good bet that your Corporate's capital account with USC is impaired more than expected. So who pays the tab? Natural Persons credit unions, of course.

Examples from Cindrich Mahalak & Co, CPAs . . . Corporate CenCorp in Michigan has an unexpected 24% impairment, or $240,000 for each million in you capital account. On the other hand, Corporate One in Ohio has no impairment expected. According to CM&Co, "don't expect any recoveries here like you saw with the NCUSF deposit, as this cannot be written up under current accounting rules."

It is suggested that you contact your Corporate to find out where they stand. I would imagine that your Board of Directors does not like surprises, unless they are good ones.

The economy seems to be improving somewhat - this is the good news. However, with new credit union legislation, potential NSF/Courtesy Pay limitations, record high unemployment, and NCUSIF related expenses, credit unions will be navagating some pretty rocky roads ahead.

Dodd OD Protection Legislation.

2009-10-29T13:58:00.000-07:00

As first reported on this blog on 7/1/09, congress is determined to severely restrict NSF and Courtesy Pay fees. It appears that this issue will be addressed sooner rather than later.

Sen. Chris Dodd (D-Conn.) introduced his version of overdraft protection reform legislation last week. H.R. 1799 would:

• require consumers to opt-in to their bank or credit union's overdraft protection program, and prohibit discrimination against consumers who do not opt-in.
• limit the number of fees that could be assessed to a consumer to one per month and no more than six per year. (What happens if a member exceeds this limit? do we close their account?)
• require fees to be proportional to the cost of processing the overdraft and prohibits the manipulation of debits in order to generate additional overdraft.
• Prohibit institutions from manipulating the order in which they post transactions in order to assess extra fees.
• require the overdraft fee to be considered a finance charge under TILA, but would not include the fee in the calculation of interest for the purposes of the usury ceiling in the Federal Credit Union Act.

Compliance Officer Issues Sigh

2009-10-29T13:24:00.000-07:00

A deep, drawn-out, world-weary sigh emanated from an occupied bathroom stall at a local credit union on Monday, witnesses reported. The sigh, described by those who heard it as "somber," "resigned," and "a sad reminder of the crushing pain, anguish, and, ultimately, meaninglessness of life," escaped from the core of the man's being at approximately 12:32 p.m. and echoed quietly off the stall's dividers. After 30 seconds of complete silence—a brief respite from the workday which the compliance officer seated on the toilet bowl likely used to contemplate his place in the credit union world—he flushed the toilet, emerged from the stall, forced himself to smile, and returned to his job for yet another day of monotonous, unfulfilling compliance work.

A New Proposal: Immediately Freeze Credit Card Rates.

2009-10-27T09:09:00.001-07:00

According to the Wall Street Journal, Sen. Christopher Dodd, who heads the Senate Banking Committee, introduced a measure that would freeze rates on existing card balances until February, when the new CARD Act rules are to go into effect. "No sooner had it been signed into law, but credit card companies were looking for ways to get around the protections," Mr. Dodd said in a written statement.

Dodd's move is part of an effort by leading Democrats to crack down on what they see as gaming of the new rules by card issuers. Reps. Barney Frank (D., Mass.) and Carolyn Maloney (D., N.Y.) have introduced House legislation that would move up the effective date of the new restrictions to December from February. As I wrote in a recent blog, the House Financial Services Committee has approved the accelerated date.

Federal Reserve Chicago President on Rates and the Economy

2009-10-27T06:20:00.000-07:00

Federal Reserve Bank of Chicago President Charles Evans said the U.S. unemployment rate will probably rise above 10 percent and inflation may stay below his preferred level for years, making it difficult to know when to "remove policy accommodation", or raise rates and stop other intervention. “The biggest challenge for all of us is very high unemployment,” Evans, who votes on rates this year, said today during a speech in Ann Arbor, Michigan. Determining when to reverse the Fed’s accommodative stance “is probably not going to be quite so apparent.”

Central bankers saw many parts of the U.S. economy stabilize or make modest gains in areas such as housing and manufacturing, according to the Fed’s Beige Book business survey released yesterday. The survey suggests that the economy is gaining momentum and has not yet overcome weaknesses in banking and employment. “My own outlook is for the economy to grow at about 3 percent over the next 18 months,” Evans told an audience gathered at the University of Michigan, Ann Arbor. Inflation should remain around 1.5 percent for the next couple of years, below the 2 percent level that’s consistent with price stability, he said. Recent movements in the dollar haven’t been “large enough” to alter the outlook for inflation, Evans told reporters afterward. Even so, “it’s obviously something we’re going to monitor,” he said.

Effective Dates May Move Up. CARD Act Update.

2009-10-26T05:42:00.000-07:00

I'm always hesitant to report proposed legislation because sometimes the text of one bill is often voted down, incorporated into another bill, changed, or regurgitated as something entirely different. However, this one seems to have a high likelihood of passing in some form, so you might want to "gear up". Side note: isn't "regurgitated a perfect word when describing new legislation?

On October 22nd, 2009, th House Financial Services Committee approved H.R. 3639 (read it here), which would move up the remaining effective dates of the Credit CARD Act from February 2010 to December 2009. However, two key amendments were added to the bill that will effectively exempt credit unions from these earlier compliance dates.

The first amendment limits the earlier effective dates for all of the provisions of the bill to issuers with more than 2 million cards in circulation. This effectively exempts all credit unions. Gift card provisions were not changed.

According to Dave Adams, Michigan Credit Union League CEO, the legislation pushing up the effective dates is a separate issue from the fix we’ve been seeking in the Credit CARD Act to narrow the scope of the 21-day periodic notice requirement from all open-end credit to only credit cards.

The Servicemember's Civil Relief Act (SCRA)

2009-10-12T17:09:00.000-07:00

Most credit union's have members who are in one of the military branches. Make sure that when you discover that a member is on active duty that you follow all the provisions of the SCRA.

The SCRA gives relief to individuals who are called to active duty in any of the military branches, including reservists or members of the National Guard. SCRA replaces and expands the Soldiers' and Sailors’ Civil Relief Act of 1940.

Major provisions of the SCRA that may affect credit unions include:

• Allowing borrowers to have their interest rates reduced to 6% on loans granted before going on active duty, if the call up to military service materially affected their ability to pay.

• Permitting active duty servicemembers, who are unable to appear in a court or administrative proceeding due to their military duties, to postpone court proceedings for a mandatory minimum of ninety days upon the servicemember's request.

• Prohibiting foreclosures or repossessions without prior court approval, up until three months after leaving active service.

• Prohibiting future adverse credit decisions based on the grant of SCRA relief. The 6% interest limitation only affects loans granted before the member entered active duty. Any loan granted after the member entered onto active duty would continue to have the terms at the time the loan was granted.

The provisions related to foreclosures and repossessions apply to dependents also. The provision related to the maximum interest rates only apply to a dependent when the member of the military also signed the note, prior to entering active duty.

In the news: "Well, if you saw '60 Minutes,' you probably saw this. President Obama coming under fire, because he has only spoken to the U.S. commander in Afghanistan once in the last six months. Well, whose fault is that? Hey, if the general wants to talk to President Obama, get a talk show. That's how you do it." "Well, actually, to be fair, I thought this was nice, President Obama said he's been very busy lately, but he would be willing to add the general as a Facebook friend." --Jay Leno

Figure on Higher Mortgage Rates by Spring

2009-10-08T05:45:00.000-07:00

According to the Kiplinger Letter, 30 year fixed mortgage rates will be in the neighborhood of 6% this Spring, even higher if the recovery is stronger than expected and businesses start selling corporate bonds to fund capital investment projects.

The upward push will come just as the Federal Reserve quits buying mortgage debt. Right now, the Fed is buying 80% (!) of home mortgages being written, filling in for a largely absent private secondary market. But the Feds efforts to keep rates low and prop up the housing market is slated to wind down between now and March 31st.

Incidentally, the reasons investors are staying away from purchasing mortgages in the secondary market are many: Oh, but my broker says not to worry! This is a subject for another day, but excercise caution if you decide to go this route. You might be buying great risk if you are reaching for yield.

Interest Rate Chonicles. The Weak Dollar.

2009-10-07T17:10:00.000-07:00

The U.S. dollar is weak. That doesn't sound good does it? But Wall Street loves it . . . a weak dollar improves corporate profits by making U.S. goods cheaper to overseas buyers. Companies can also improve profits when they convert sales made in foreign currencies to dollars. Conversely, imports become more expensive.

How does this affect interest rates? Yesterday, Australia's central bank became the first G20 country to raise interest rates. Others may soon follow. This could prompt investors (read China) to sell dollars as they look to put their money into markets where interest rates are rising. The US then would have to raise rates to attract investors to finance our RECORD deficit borrowing.

Wouldn't you love to have the President's job? It would be a hoot to just spend an unlimited amount of money. Whoops, just ran out . . . that's OK, just print some more! (Don't get any ideas, you and I go to jail if we print money). By the way, this is a sure recipe for inflation (yep, inflation also means higher rates).

Ok, so you produce your ALM reports every quarter. Nice work. Keeps the examiners happy, right? But is anyone actually using the reports to form a strategy to reduce interest rate risk? Your ALM results are probably looking pretty good right now, but keep in mind that with interest rates HISTORICALLY low, those rosy numbers are skewed favorably and can change in a hurry. Do a couple of "what if" analysis and you'll see what I mean.

Let's face it, interest rates have no where to go but up, the question is when.With all the other problems plauging the industry, it's easy to take your eye off of Asset Liability Management. But your current problems could look like a walk in the park if you get caught on the wrong side of the rate risk equation.

The new CARD Act Includes Gift Card Changes

2009-09-28T07:47:00.000-07:00

As you may have noticed, the CARD act applies to much more than just credit cards. Your Gift Card program will also be affected. Along with Home Equity Lines, unsecured, and other secured lines of credit. It even takes a shot at gift certificates. . . and don't forget Protecting the Right of Individuals to Bear Arms in Units of the National Park System - I'm not kidding, this is actually in the CARD Act. Ever wonder how many laws and regulations our lawmakers can actually come up with? I'm hoping they run out of ideas soon.

The law amends Regulation E to prohibit a credit union from charging dormancy/inactivity fees, or service fees on a gift certificate, store gift card or general-use prepaid card. But a fee may be assessed after 12-months of inactivity. Only one fee can be charged each month, and the proper disclosures have been given at the time the card was purchased.

In addition, a gift certificate, store gift card or general-use prepaid card cannot have an expiration date earlier than 5 years after the instrument was issued or the date on which funds were last loaded on to the card, and the terms of expiration must be clearly stated. The Fed has yet to provide the amount of fees that are acceptable. The Fed is to issue final regulations with an effective date 15 months after the President signed the CARD ACT.

Help Your Members With Free or Affordable Health Care

2009-09-23T12:22:00.001-07:00

The national discussion related to affordable health care discussion seems to be all the rage today. A little secret . . . there is already free or affordable health care available to anyone who needs it.

Train your front-line people or collection people to listen to your members. Are they having financial problems due to health care costs? Right from the Federal Health Resources and Services Administration Site:

Federally-funded health centers care for you, even if you have no health insurance. You pay what you can afford, based on your income.

Health centers provide:

checkups when you're well
treatment when you're sick
complete care when you're pregnant
immunizations and checkups for your children
dental care and prescription drugs for your family
mental health and substance abuse care if you need it

Click on the link to the FHRSA, input the address, and find a nearby health center. It's easy, and you might just save a life, or maybe a bellyache, possibly a toothache.

Fed Slows Mortgage Purchases, Sees Stronger Economy

2009-09-23T09:00:00.000-07:00

Sept. 23 (Bloomberg) -- The Federal Reserve will slow its purchases of mortgage securities, seeking to avoid disrupting the housing market as an economic recovery takes hold.
“The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010,” the Federal Open Market Committee said in a statement today after meeting in Washington. The $1.45 trillion program was scheduled to cease by the end of this year.
Chairman Ben S. Bernanke and his fellow policy makers indicated for the first time since August 2008 that the economy is accelerating, even as they recommitted to keep their benchmark interest-rate “exceptionally low” for an “extended period.” Today’s statement signals the Fed will maintain its stimulus measures to secure a recovery and reduce unemployment.
“The mortgage market has gotten a reprieve, and mortgage rates may stay low going into the spring of next year,” said Christopher Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York

See the Complete Article

2009-09-21T12:07:00.000-07:00

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Told You So . . . Senator Dodd is Introducing a Bill Regulating Overdraft Fees.

2009-09-21T07:44:00.001-07:00

If you haven't taken a look at your NSF and "Courtesy Pay" program in a while. This would be a good time to do so. . . you might be surprised at how much revenue you realize from these programs. And it all may change very soon. I don't mean to sound like a broken record (I've written several articles about this since July 1st, 2009), but you might want to come up with a plan to somehow replace potential lost revenue.

Here's what Sen. Dodd has to say “Excessive, automatic overdraft fees are forcing many American families deeper into debt at a time when they are already struggling to make ends meet,” . . . “I am working on a bill to protect consumers from these fees.” Representative Carolyn Maloney, chimed in “The evidence is overwhelming that bank overdraft fees are out of line, and that banks are milking their system for all it’s worth,” . . . “It’s time to crack down -- as Congress has already done with credit cards.”

According to Bloomberg, Dodd’s bill would require customers to “opt-in” to banks’ overdraft protection programs, prohibiting lenders from automatically enrolling their customers in the plans. It's not clear whether your current program will be "grandfathered" in.

Couple this with the letter that Democratic leaders sent to the Federal Reserve back in June 2009, and an abundance of horror stories from consumers (just do a search online, you will see what I mean), and I believe we will see some significant changes in NSF requirements soon.

Who's the Boss? The Auditor, Examiner, or You?

2009-09-15T06:49:00.000-07:00

Janice Hollar, a management consultant with Janice Hollar & Associates wrote an excellent article related to a common trap that credit unions often fall into: managing your credit union to keep the examiners and auditors happy. If you find yourself worrying about getting a near-perfect exam or audit, then you probably have taken your eye off the ball and have your priorities out of order.

Ms. Hollar explains that, while we must operate our credit union's in a safe an sound manner, "managing the credit union to a CAMEL ratio does not necessarily mean you are satisfying the boss that matters most: the member owners".

Exams and audits can be an important tool. But, as Janice says "Don’t ignore the CAMEL. Just don’t rely on it alone. If the CAMEL is poor, obviously there is a problem. But if your CAMEL is good, it’s not an indication that everything is fine". Take a minute digest how relevant the findings actually are. If it is just minutia, then the examiner/auditor ran out of important issues to review. . . address the items, then get to work on the important issues and grow earnings and capital by servicing new and existing members.

Want some advice on how to get the examiner or auditor out of your credit union quicker? Try some of these useful tips:

1. Tell everyone to speak only in a "robot" voice the whole time they are in.

2. Tie jingle bells to all your clothes.

3. Deliberately hum songs that will remain lodged in the examiner's brains, such as "Feliz Navidad", the Archies "Sugar" or the Mr. Rogers theme song.

4. Borrow the examiner's pen, then chew on it before returning it. Repeat.

5. Never break eye contact when talking to the auditor, all the while bobbing your head like a parakeet.

Risk Based Examinations. A Quick Overview.

2009-09-10T17:13:00.000-07:00

Examinations have migrated considerably from the "bad old days" where an examiner would review a slew of items and report any number of minutia. If I didn't know better (I don't for sure), I would have bet big money that they were paid by the word. The reports were often useless in determining where potential risk, if any, needed to be addressed. Since then, examinations are intended to be more focused on "the forest instead of the trees". Hence the advent of the Risk Focused Examinatin Program.

Right from the NCUA examination manual; "While performing risk-focused supervision, examiners should look for sources of uncertainty within the operation of the credit union. Based on their findings and using their professional judgment, examiners will prioritize these risks by the magnitude of the potentially adverse effect on the earnings and capital of the credit union".

Regardless of what the examiners will review, your credit union should focus on risk management, it's just smart management. This includes a strategic plan with implementing policies, procedures, and internal controls necessary to manage inherent risk. The seven categories of risk for credit union supervision purposes are Credit, Interest Rate, Liquidity, Transaction, Compliance, Strategic, and Reputation risk. Ignoring any one of these risks can mean big trouble. Be sure you have policies in place that address all of these areas, and DOCUMENT your efforts to ensure that your credit union actually follows your policy and procedure. Examiners are funny about this.

Unrelated but in the news: on President Obama's discussion with children across the U.S. . . .
"The President also said that kids -- he told them if they study hard, the United States will continue to prosper. Then he added, 'But just to be safe, bone up on your Chinese.'" --Jimmy Fallon

Bank Pain, Credit Union Gain. Commercial Property Forecast : Forget the Umbrella, Bring a Lifeboat.

2009-09-08T11:03:00.000-07:00

The credit union industry can thank their lucky stars that the NCUA didn't raise the 12.5% commercial loan cap (yet). Plenty of small and medium-sized banks loaded up on developer loans just as their big brothers scarfed up home mortgages during the housing bubble. But that's not to say that some credit union's didn't take the bait and jump into the "profitable" commercial loan ocean as well. Many more banks and maybe a few credit unions will likely end up in Davy Jones' Locker because they took the plunge.

The outlook: vacancies are rising causing rents to fall, and it is estimated that up to $300 billion in loans will mature this year; commercial loans are often written with a balloon note. Even if the loans are generating sufficient P&I payments, property values have fallen so much that the lender may not or cannot re-write the loans. As a result, according to The Kiplinger Letter, defaults will soar from about 1.6% in 2008 to 5%.

It is highly likely that a good number of your competitors are on the ropes. They are forced to charge more for loans, if they are lending at all. Do some homework; what are their weaknesses? Find out. No need to take unnecessary risk, but you may find that this is a perfect time to pick up some market share. Yes, you need to watch your expenses, but don't stop advertising. Just make sure that the advertising you are doing is effective. Demand that the people who you pay to do your advertising can quantify the expenditure.

Short-Term CDs, a Lullaby.

2009-09-04T06:15:00.000-07:00

Remember the sweet little lullaby Rock-a-bye Baby? - It's very soothing, puts the baby to sleep, nice. That is until you consider some of the lyrics: "When the bough breaks, the cradle will fall. And down will come baby, cradle and all".

Market Rates Insight has released a new analysis which confirms what most of us already know. Members are eschewing long-term CDs for short term deposits. This has been the trend for at least the past year, and as a result, the typical credit union's cost of funds has dropped rather quickly and significantly. Since deposit interest rates are historically low and you still hold loans and investments booked during a period where rates were higher, your bottom line is looking better (aside from loan losses, a Brother's Grimm story). Heck, you can even run a loan special a very low rates, right? "Rock-a-bye baby. . ."

Flash forward. Rates begin to rise, and all that short-term money begins to reprice. Quickly. Within a year. You hear someone say, "hey, what's happend to the bottom line? It turned all red". That loan special you were so proud of? No one is claiming credit for that brain-child anymore; and "down will come baby, cradle and all. . ."

The good news? Rates probably won't move much within, say, the next year or so. But once they do, they can move quickly. Age-old advice that the wizened give - be forward looking and get your balance sheet in order, you might have a little time.

Credit Card Act Compliance. A Little Break. Maybe.

2009-09-03T05:08:00.000-07:00

The Credit Card, Accountability, Responsibility, and Disclosure Act of 2009. I get it! the C.A.R.D. Act . . . those wacky congress folks are so darn clever with the names of their regs.

Under the CARD Act, credit unions are required to deliver periodic statements for open-end consumer credit plans at least 21 days before the payment due date, this portion of the Act is effective August 20, 2009. According to a recent NCUA Release, "the Federal Reserve Board acknowledged that some creditors may experience difficulties, for open-end credit plans other than credit cards, with revising their billing systems by August 20", and "that for a “short period of time” a creditor “may remedy this technical issue by prominently disclosing elsewhere on or with the periodic statement that the consumer’s payment will not be treated as late for any purpose if received within 21 days after the statement was mailed or delivered.”

The NCUA will review credit unions on a case-by-case basis to determine if reasonable efforts have been taken to come into compliance with the CARD Act. In any case, no late fees should be imposed under these circumstances.

Speaking of credit cards, my card was stolen a few weeks ago. I told the credit union to just let the thief keep it . . . he spends a LOT less than my wife. Ba-dum-dump!

Employment Data Due on Friday

2009-08-31T18:00:00.000-07:00

The market is expecting unemployment to rise ever so slightly from 9.4% to 9.5%. A lower than expected unemployment rate may be one more signal that the recession has hit bottom and the economy is turning around. A higher than expected rate could mean we are in for six more weeks of winter. No, wait, that's Puxatony Phil.

The employment report is considered the most timely and broad indicator of economic activity released each month. The average workweek is an important part of the employment report because it can be a determinant of personal income and a useful indicator of labor market conditions: a rising workweek may be the first indication that employers are preparing to boost their payrolls.

Why is this so important to credit union managers? Higher employment is likely to lead to what we will call a "normalization" of interest rates over the next year. If you are getting close to budget time, determining the direction of rates will go a long way towards providing you with a meaningful financial "road map" and help you plan for the coming year. Because interest expense is such a large line item, a wrong "guess" on interest rates can make a real difference in the accuracy and usefulness 0f your budget as a Board and management tool.

There is more information related to employment than you could ever want at http://stats.bls.gov/news.release/empsit.toc.htm.

SAR Improvements and Other Fun Facts.

2009-08-31T05:30:00.000-07:00

Priority = High

Ever wonder whether anyone gets a Suspicious Activity Report (SAR) you filed? Does anyone really care about all the hard work you put into filling out the form just right? Unless the filing gets the attention of law enforcement (or you made a glaring error), you really can't be sure that the SAR arrived safely at it's destination. Until now, that is. on September 12, 2009, FinCEN will implement SAR Acknowledgements for BSA Electronic Filing submissions. More information can be found on FinCEN's SAR Acknowledgements and Validations Questions and Answers Guide.

A little bit about SARs:
A credit union must file a SAR when it knows or suspects that:
The funds come from illegal activity or disguise funds from illegal activity; the transaction is structured to evade BSA requirements, (for instance a member makes more than one deposit to circumvent the $10,000 cash reporting rules); apparent unlawful purpose; or, the credit union is being used to facilitate criminal activity.

Credit Unions are required to file an SAR report following the discovery of: insider abuse involving any amount, violations aggregating $5,000 or more where a suspect can be identified, or violations aggregating $25,000 or more regardless of a potential suspect.

Considering all the attention on Privacy rules, the requirement to file an SAR only upon a "hunch" seems oxymoronic (no moronic jokes, please). So it's tempting to error on the side of caution and file an SAR only when the law has clearly been violated. But be careful, there are penalties for those individuals that fail to file an SAR as required or disclose to the member that they have filed a SAR about them. Penalties include extremely high fines and long prison sentences if found guilty. In addition, financial institutions face penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation.

But not to worry, the government says you can't be held liable for information filed on a SAR report.

Another $1 Billion Stabilization Assessment?

2009-08-28T10:52:00.000-07:00

I'm going to be lazy today and just provide you a re-print from CUiSIGHT.com and the Credit Union Journal. But this is important. I know what my boss might be thinking . . . I'm always lazy!

NCUA Prepares Special Insurance Assessment August 28, 2009 – Credit Union Journal

ALEXANDRIA, Va. – NCUA is putting together a proposal that will require credit unions to pay another $1 billion into the National CU Share Insurance Fund in the face of rising credit union losses and expanded coverage on member deposits.

The additional charge will be voted at the Sept. 24 NCUA Board meeting, according to John McKechnie, NCUA chief spokesman. Credit unions would be required to pay the extra charge in the fourth quarter.

The new charge is on top of $1 billion credit unions are expected to pay annually over the next seven years to fund the corporate credit union bailout. Those charges have been moved from the NCUSIF to a new Corporate CU Stabilization Fund, which will effectuate the corporate bailout.

Right to Financial Privacy (RPFA). Be Careful.

2009-08-26T12:37:00.000-07:00

RISK LEVEL = HIGH

RFPA protects the personal financial privacy of federal credit union members by restricting access to the member's financial records.

A scenario: a local police officer comes into your office and tells you that he is investigating your member for his role in a fraud case involving the member's checking account. Just give him what he needs, right? Not so fast! The RFPA requires that the credit union obtain written authorization from the member, or secure from the government authority a subpoena or summons, a search warrant, a judicial subpoena, or a formal written request to release information about a member. Afraid to tell the cop you can't help him? Try this, it works for me . . . look around the room suspiciously, then quietly inform him that you can't help him because you believe he exists only in your imagination. He'll likely get scared and leave - at the very least, he'll go ask someone else.

In addition, policies and procedures for complying with the requirements of the Right to Financial Privacy Act (RFPA)are required. A good policy and due diligence to comply with the Act will keep you out of trouble. Compliance risk can occur when the credit union fails to implement the necessary controls to comply with RFPA; and Reputation risk can occur when members of the credit union learn of its failure to comply with RFPA. Risky business, that RFPA.

Warren Buffett, Mr. Know it All.

2009-08-19T13:25:00.000-07:00

Warren Buffet is concerned about the tremendous mountain of debt the country is piling up. Last year he said we were justified in using any means necessary to stave off another Great Depression. Now that the economy is beginning to recover we need to curtail our out-of-control spending, or we'll destroy the value of the dollar and many Americans' life savings.

Some fun facts from Buffett's article today in the New York Times:

Congress is now spending 185% of what it takes in
Our deficit is a post WWII record of 13% of GDP
Our debt is growing by 1% a month
We are borrowing $1.8 trillion a year

$1.8 trillion is a lot of money. Even if the Chinese lend us a record $400 billion a year and Americans save a remarkable $500 billion and lend it to the government, we'll still need another $900 billion. So, where's it going to come from? The printing press. And, ultimately, Buffett says, that will destroy the value of the dollar. There goes inflation and by extension, interest rates.

But what does Warren Buffet know anyway?

My personal conspiracy theory: The Obama administration is counting on high inflation to 1. resolve the real estate crisis by increasing the nominal value (as opposed to the real value adjusted for inflation) of real estate, and 2. allow them to repay all the money the government is borrowing with inflated dollars. It won't be the first time in history that high inflation has had both positive and negative effects on the economy. Hope you are getting ready for the ride! The true test of the effectiveness of your ALCO/ALM Committee efforts today will show once inflation is a reality.

Appraisers Under New Scrutiny - Revisit Your Appraisal Policy

2009-08-19T05:30:00.000-07:00

An article appeared in the Wall Street Journal on 8/18/09 that (again) scrutinizes the validity of real estate appraisals. (Click here for the complete article). The Regulators have been vilified in the press regarding their role in missing the housing debacle. You can be sure they are paying close attention to media scrutiny.

The role that appraisers played in the crisis is a matter of considerable discussion. Regardless of where you stand on the matter, the Regulators are taking a closer look at whether or not financial institutions use competent appraisers. It would be a good time to review your appraisal policy and at the very least, be sure you have all your "ducks in a row"; make sure you have a current list of approved appraisers, an updated copy of their license, etc. And don't just look at the bottom line value. Check each appraisal to be sure all required components are included. A checklist is always a good idea, and an appraisal policy is REQUIRED.

Speaking of crisis, the Chinese word for "crisis" contains two characters. One of them means "opportunity". Now that real estate values are correcting themselves, mortgage loans may have become a safer bet, at least as far as the underlying collateral value is concerned. But, due to historically low rates, be aware of interest rate risk. No need to stop selling to Fannie and Freddie. But to book mortgages in your portfolio, wait for the perfect storm - rates rise to a "normal" level, unemployment levels off, and collateral values can be trusted.

NCUA Regs require state-certified or state-licensed appraisers. The Reg states that appraisers must (1) have demonstrated competency, (2) subject their professional conduct to effective supervision, and (3) perform written appraisals in accordance with the Uniform Standards of Professional Appraisal Practice.

Do you need your state's appraisal licensing board contact information? Click Here

Real home values depend upon an appraisal about as much as the economy depends on economists as the weather does on forecasters. You should know your market, use common sense, and be sure your appraisers valuation makes sense.

Growth Starts at the Top

2009-08-18T08:34:00.000-07:00

It's said time and again that if you aren't moving forward in business you are moving backwards. Most credit unions desire some level of growth and there is plenty of advice out there related to setting goals, action steps, positive feedback, and on and on. This is all very useful information. But I've seen it time and again, the most effective leaders lead by example. Your most senior loan manager should be a top producer, ditto your branch or mid-level managers. It simply sets the tone for what is expected and definitely reduces underlying resentment from their teams.

A know a Senior Vice President at a $1.5 billion bank, (a busy guy, as you can imagine) who leads in this way. Month after month he somehow finds the time to make nearly the most business calls, and is often the top producer of the entire loan function. His team admires him and doesn't mind working HARD as well - and the results show. Actually, he was my boss at one time and now I'm getting all teary-eyed and nostalgic (OK, maybe I'm exaggerating a bit).

Do your senior managers lead by example, or just hand-down edicts to their "subordinates"? (I don't like this word, but it fits in this case). They don't necessarily have to be a top producer, but by being "in the trenches" with their soldiers, they will earn respect and you will likely see an increase in production across the board.

"A leader is one who knows the way, goes the way and shows the way". John Maxwell

Shocker! FASB Proposal - Mark to Market Soon to Apply to All Loans?

2009-08-13T12:34:00.000-07:00

The FASB met on 8/13/09 to consider expanding mark-to-market accounting rules to good old-fashioned traditional loans. I am NOT making this up!

Mark-to-market requires financial institutions to determine market values on their traded securities, but is currently not required for loans carried on the balance sheets of banks and credit unions. The FASB is expected to release a formal proposal on the changes in the first half of 2010.

This would be a MAJOR change in accounting rules and could force credit unions to take losses, and hinder their ability to meet capital requirements. Imagine this scenario: Interest rates move up quickly, which would in turn mean your loans have less value; who would purchase loans with a lower yield than market interest rates? You would have to sell them at a discount, yes? With mark-to-market applied, you will have to reflect the lower "value" on your books. How is market value determined? There are plenty of questions.

Sometimes, FASB proposals die on the vine, and this one may wither away too, especially with the banking industry gearing up for a dogfight. Hopefully, the credit union industry will nip at FASB's heels as well. But this one just may go through, as there has been a concerted effort to make accounting rules more international in nature - the International Accounting Standards Board has made moves towards mark-to-market for loans. Click here for a related CNBC Article.
I've been trying to come up with an alternative for the FASB acronym. So far I have (der) Fuhrer Accounting Sadistic . . . I need something for the "B" any ideas what the "B" could be?

The Story Behind the Fed Funds Target Rate Announcement.

2009-08-12T17:01:00.000-07:00

The Feds left the target rate fed funds interest rate range steady at 0% to 0.25%. This was no surprise. Perhaps more importantly, though, they announced that they will begin reducing the amount of Treasuries they have been buying to help offset the amount of debt needed to cover the government's spending spree. This could reduce demand and contribute to a rise in the 10 year Treasury rate. The 10 year rate affects mortgage, commercial, and other consumer loan rates. Diminished demand for Treasuries will drive rates upward, as rates must increase to attract investors. Some other forces that could affect demand for Treasuries:

1. With more confidence in the economy, investors may move their money out of the safety of Treasuries and into investments that provide a higher yield.
2. The government will need to issue more debt (treasuries) than at anytime in our history, increasing supply.
3. Some say that foreign investors may begin reducing their purchases of our debt, or simply would not have the capacity to purchase the trillions in debt necessary to fund the stimulus and new White House initiatives.

If the government would have to raise the interest it pays on it's debt due to increased supply and decreased demand, it would prematurely drive up borrowing costs at a time the economy appears to be on the cusp of recovery.

Did you know that the Prime Rate was as high as 21.5% in 1980? For several recent decades, a 10% Prime Rate was not unusual. Can it happen again? What if it does, or something close to it? What would happen to your credit union's financial condition? The importance of a good Asset Liability Management program cannot be stressed enough.

Also during the Fed meeting, Federal Reserve Chairman Ben Bernanke said he would be willing to serve another term. He said, 'Where else would I get a job in this economy?'

Business Continuity Plan (aka Disaster Recovery). Teacher's Manual.

2009-08-11T18:40:00.000-07:00

When I was in elementary school, I was always amazed at how smart the teachers were. Then I found out that THEIR book had all the answers . . . .

The FFIEC has published their Business Continuity Plan examination manual. Because your examiner uses the manual, just follow the guide and you should have no problem passing your next exam with flying colors. A hint - examiners are BIG on testing. Put your plan in place, test the various parts of the plan, and document your efforts. If you don't document your efforts, then the examiner will assume it wasn't done. How many of us have learned this lesson time and again? I just raised my hand.

Follow this "examination manual" link and you will have all the Business Continuity information you could ever ask for, and more.

A little conversation I had with my fifth grade teacher one day. . . Me : I don't think I deserved zero on this test. Mrs Norton: I agree, but that's the lowest mark I could give you.

USA Today Slams Credit Union Courtesy Pay Fees

2009-08-10T07:28:00.000-07:00

Still not too worried about potential changes in Courtesy Pay regulations? It's the big bad banks that people worry about, not us, we're the good guys, right? The Courtesy Pay cash cow most credit unions depend upon may change your hard-fought image in a hurry. Frankly, Courtesy Pay is a little hard to defend. USA Today released an article that calls the Credit Union industry out on their "people helping people" image. Among the quotes from the article:

"they're just not any different than a bank."
"they find every opportunity they can to zap you."
"It's sort of like Robin Hood in reverse,"
"credit unions have also focused more on fee income — and strayed further from their mission of helping members"

They also point out that the Obama administration is pushing to create a regulatory body that could require financial institutions to get consumers' explicit consent for these loans, disclose the credit's high interest rates and warn borrowers at checkout if they're about to overdraw. These efforts, if successful, would cap how much federal credit unions can charge for overdraft fees. That's because if courtesy overdraft is defined as a loan, it would be subject to an interest rate cap — currently 18% — on loans made by federal credit unions. To put this in perspective, this cap could reduce your fee revenue to a small fraction of what you currently earn.

According to Evan Clark, a government based credit union CEO, "There are a lot of credit unions that, if they didn't have overdraft income, they'd go under". Is your credit union in this camp? As I've advocated in the past, it would be prudent to begin a contingency plan now, before the Courtesy Pay rug is pulled out from under you.

Speaking of rugs, also in the News : It was so hot today that thing on Donald Trump’s head was panting.

Big Bailout Banks Belly-up to the Bond Buying Bar.

2009-08-04T20:21:00.000-07:00

According to Bloomberg, lenders that were bailed out by the Government have been purchasing Treasuries at a rapid pace. Whether the purchases are a return "favor" to the Feds to help keep interest rates low is purely speculation. Add this activity to the $1 trillion of debt the Feds have already pumped into the system (by buying treasuries), sprinkle the additonal $300 billion they plan to purchase over the next six months, and you have interest rates on ten-year treasuries being held artificially low (the ten-year is a benchmark used to set mortgage and commercial loan rates).

Let simmer for about a year with the 2.9 trillion in debt the government still needs to sell and you have a great receipe for inflation and rapidly rising rates. Or maybe not. The direction of rates are notoriously hard to call. But be prepared. This period of relative calm before the storm is a good time to get your ALM position in order.

Fun Fact: Did you know that a Billion in the U.S. is a thousand million, but a billion in Europe is a million million? I wonder if anyone has ever wired the wrong billion overseas. Anyway, it's all a gazillion to me.

More Losses at U.S. Central.

2009-08-03T19:41:00.000-07:00

In the 1942 classic movie Casablanca, Captain Renault, in an attempt to get himself out of trouble, said he was shocked, SHOCKED that there was gambling going on at Rick's Cafe (as a croupier hands him a stack of cash).

Likewise, I'm sure that U.S. Central's management team was shocked, SHOCKED to hear last week that USC had an additional $537 million of losses on their mortgage securities that they didn't know about before the audit. The losses will adversely affect its corporate members and, guess who ultimately gets to pay the tab? Yep, natural person members of most of U.S. Central’s 27 corporates. Translation - your credit union. Check your Corporate's website or with your Rep to determine the cost to your credit union; you may have to write down your capital shares with your Corporate.

More information can be found in a Credit Union Journal article.

NCUA Deposit Insurance on Steroids.

2009-08-03T05:18:00.000-07:00

By now it's old news that, in May, the Feds raised NCUA deposit insurance coverage to $250,000. Yes, the the coverage likely will become a permanent change, but the Act states that the increased coverage expires on 12/31/2013.

Many members believe that the most their deposits can be insured for is $250,000. The NCUA provides a nice brochure that does a good job of explaining the complexities of deposit insurance. One example they cite is that a family of four could be insured for up to $3.5 million if they structure the accounts properly.

A couple of handy resource links to have available in case members have questions.
1. The NCUA "Your Insured Funds" Brochure.
2. The Online Share Insurance Calculator.

You may find that the calculator puts members at ease when it comes to explaining increased coverage; print the results and provide them a copy.

In the News:
JAKARTA, INDONESIA—Its currency and economy decimated by the lingering Asian financial crisis, Indonesia received welcome news Tuesday, when the World Bank announced it would offer the struggling nation totally free checking.

"Indonesia can say goodbye to high checking fees," World Bank president James D. Wolfensohn said. "No monthly service charge, no per-check fee, and free touch-tone balance information are just some of the benefits Indonesia will enjoy with the World Bank's 'Totally Free Checking' program. And there are no strings attached and no hidden fees—that's the World Bank guarantee!"

Wolfensohn added that if Indonesia opens a Totally Free Checking account by Oct. 15, it will receive a free athletic bag.
(The Onion News excerpt)

Call Report Software Now a Thing of the Past.

2009-07-30T18:16:00.000-07:00

In September 2009, the NCUA will require that the quarterly Report of Officials and 5300 Call Report information be submitted on their new web-based system as opposed to using the quarterly software. NCUA is hosting several webcasts to provide you with information related to the switch. The first webcast will be Wednesday, August 12, 2009 at 1:00 PM EDT. To register, go to http://event.on24.com/r.htm?e=153687&s=1&k=D7CCC63C961E35B7BD87B6ED7DF01A01

The NCUA has also put out a FAQ document that should answer most of your questions. Here's the link http://www.ncua.gov/DataServices/Data/5300/09July/OnlineFAQ.pdf.

If you are the person responsible for preparing the "Call Report" or 5300 data, we just want to take a minute to thank you for all your hard work. It's a Herculean effort each quarter, and chances are, no one at your credit union appreciates what you go through. Today, we salute you, Call Report Preparer. Sure, there is great danger of paper cuts. Ink on your hand? You bravely soldier right through. Lunch? Maybe after you calculate net charge-offs. You are the REAL Real (Wo)Men of Genius. We crack a can of sugar-free, decaffeinated iced tea to you, the Call Report Preparer.

Horizontal Analysis.

2009-07-29T18:03:00.000-07:00

When I mentioned to a co-worker that I was going to work on my Horizontal Analysis, she asked me if that meant that it was "nappy" time again. The common response to that is "very funny, but don't quit your day job to do stand-up". My response was "that's funny! you ought to quit your job to do stand-up". As of this writing, she is still here . . . but I'll keep you posted. I asked everyone to laugh at every little thing she says.

A Horizontal Analysis can take many different forms and is a fundamental tool that many finance and accounting professionals use to analyze the balance sheet and income statement. If you download all of your general ledger accounts and put them side by side in a spreadsheet, you can easily and quickly spot trends. It is also used to detect potential errors. For instance, if a GL account balance suddenly spikes up or down one month; it's worth a look to see if something was posted incorrectly. The possibilities are endless! I know what you're thinking . . . "those finance and accounting types lead VERY interesting lives!!!"

A pretty good example and definition can be found at http://www.accountingformanagement.com/horizontal_analysis_or_trend_analysis.htm

Stay tuned. One of these days, we'll talk about VERTICAL Analysis.

Credit Union Bond Renewal. Do Some Homework.

2009-07-29T05:05:00.000-07:00

Deciding which carrier to use for your Credit Union Bond can be a challenge. For several reasons, it would be a huge mistake to just automatically renew your bond with your current carrier. Number one is cost. I can speak from personal experience that you can save upwards of 30% for equal, possibly better, coverage just by shopping around. Just to put things in perspective; a $30 million credit union saved $9,ooo just by making a switch. The CEO testifies that claims were paid without a hassle and service was excellent.

But you just love your Rep, and you couldn't do that to him/her? If they are charging you 30% more than they should, they aren't doing you any favors.

Get several quotes, find out which services they offer, etc. When they discover that you are shopping around, your current carrier may miraculously find a way to reduce your premium. In any case, make an informed decision.

The NCUA has approved about a dozen carriers. A list can be found here: http://ncua.gov/Resources/AdministrativeOrders/Bonds.aspx

A personal story. I was having dinner with my wife and this guy walks in and loudly proclaims: " I think all insurance agents are crooks". A man quickly rushes up to the guy and shouts "You take that back!" The guy replies, "Why? ... are you an insurance agent?", the man, in a rage, hollers back, "No, I'm a crook".

"WAR" Against Overdraft Fees is Brewing.

2009-07-26T21:10:00.000-07:00

I don't mean to nag, but even Wall Street is becoming concerned about the effect on bank earnings due to changes in overdraft fee regulation. An article that appeared in the July 25th Wall Street Journal indicated that 54% of TCF Bank's noninterest income is from "service charges" (read NSF fees) and that "TCF should let shareholders know the likely impact on earnings". Take a minute to calculate the potential impact of reduced overdraft fees on your bottom line. Please check with your doctor before doing this exercise, a high stress level is a likely outcome. Something like 90% of all credit unions would be in the red without fee income.

As I mentioned in my July 1st blog post, Congress has asked the Fed to restrict NSF fees, and according the the Journal, the Fed is responding. As we all know, when the APR on an NSF fee relative to the amount overdrawn is calculated, it can be astronomical. Politicians aren't turning a blind eye to overdraft fees any longer, and the Feds have proven that they can move fast when implementing new Regs. In addition, battling "unfair" fees is exactly what the President's new Consumer Financial Protection Agency is being set up to do.

A two-fold action plan: 1. Get your state League and lawmakers involved in the issue. Let them know that reduced overdraft fees will lead to higher fees on other services, lower rates on savings, and higher borrowing costs. 2. Be prepared to find ways to make up the lost fee income. The Fee War is coming, be prepared for the battle.

A Soapbox Moment . . . a little self-regulation might be in order. Yes, members can benefit from Courtesy Pay if used properly. No, we shouldn't "mother" our members, they should be allowed to make their own financial decisions. But let's be honest, some of our less-fortunate members can get themselves in trouble with Courtesy Pay and may be too embarrassed to ask for help . Not everything that is legally permissible is ethical.

Got a Minute? How About 52?

2009-07-26T19:50:00.000-07:00

So, I'm making my adjustments to Northern Michigan living, and I can assure you that this is beautiful country. If you have never been "up north", it would definitely be worth a trip. When the trees change colors in the Fall, it's an amazing sight to behold. After mentioning the lack of variety of radio stations in these parts, my AVP said to me "what do you mean?, we have both kinds of music . . . Country AND Western". However, I like more of a variety.

That little story was just a convoluted way of trying to deny that I'm just a nerd that listens to NPR radio. On my long commute up, I ran across an interview with author and educator Parker Palmer on NPR. The 70 year-old wise-man spoke to how the economic downturn is changing, for the better, the way people interact with each other and how many business managers, CEOS, and others are realizing that conducting their lives and businesses in an ethical manner pays off in the long run. It definitely applys to the credit union movement philosophy. And it's "chock-full" of great insight on life.

The interview is found on their "Speaking of Faith" segment, but is more secular in nature. If you have an uninterrupted hour to yourself, it's definitely worth a listen. Here's the link http://speakingoffaith.publicradio.org/programs/2009/rv-palmer/

Banks Introduce 75-Cent Surcharge For Using Word 'Bank'

2009-07-25T17:44:00.000-07:00

Executives from the nation's 50 largest banks announced Monday that, effective July 1, all customers will be assessed a 75-cent surcharge each time they use the word "bank." "Now, each time a customer uses the word 'bank' in either its spoken or written form, 75 cents will be automatically deducted from his or her account," said Kenneth Nordland, 54, president of the American Banking Association. "For instance, if you say, 'I bank with Bank of America,' that would cost you $1.50." Nordland added that customers wishing to avoid the penalty are encouraged to use the alternate phrase "financial institution."

Just kidding.

^TNX Creep. Interest Rate Chronicles

2009-07-24T16:30:00.000-07:00

Ok, so Fed Chairman Bernake said that the Feds will be leaving the Fed Funds Rate alone until the unemployment situation starts to improve. Unfortunately, that doesn't appear to be ready to happen anytime soon. And unlike his predecessor, Alan Greenspan, there is infinitely more openness about what the Feds will be doing with the rate. This kind of takes out all the fun of trying to guess what the Federal Reserve is up to.

But, we still have the bond market to concern ourselves with, and because mortgage rates move with the ten-year bond rates (symbol ^TNX), it's definitely worth our time to watch the direction the bond market moves. As investors become more confident about the market, they can stomach a bit more risk, hence a move out of the safe and loving arms of U.S. Treasuries and into other investments. The reduced demand effectively causes treasury rates to move higher. As of this writing, the ten-year is creeping upward towards a 52 week high. Take a look at the Yahoo Finance chart for TNX, you will see where we are headed.
http://finance.yahoo.com/echarts?s=%5ETNX#chart1:symbol=^tnx;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

You might want to purchase some video games for your mortgage department - if rate go too much higher, refinances might dry up and they'll have nothing to do all day.

Regulation B. Equal Credit Opportunity Act.

2009-07-23T06:41:00.000-07:00

RISK LEVEL = HIGH

Purpose: to promote the availability of credit and prohibit discrimination to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (protected class). Also to notify members of approval or denial of their application; to report credit history in the names of both spouses on an account; to collect information about the applicant's race and other personal characteristics in applications for certain dwelling-related loans; and to provide copies of appraisal reports if requested.

Regulators mainly look for two types of discrimination. 1.Discrimination against an individual. We are all familiar with this type of discrimination and should know the repercussions, and 2.Disparate Impact or practices that have the effect of discrimination against a protected class. There is considerable risk to the credit union because under Disparate Impact, proof of discriminatory motive is not required. For example, let's say an examiner reviews your loan portfolio and finds that the percentage of loans to minorities is lower than that of the percentage of minorities in your field of membership. Did you know this? You should, and you should take action to rectify the situation.

An examiner is required to report incidences of discrimination to the Justice Department. Can I state the obvious? You don't want this.

Recommendation: conduct your own "due diligence". Download your loan (especially mortgages) demographic information and analyze the info. If you can show that you have taken steps to determine whether or not your portfolio may have a Disparate Impact against a protected group, and have taken action to attempt to rectify the matter, you could save not only monetary penalties, but reduce reputation risk as well.

The entire Reg can be found at: http://www.fdic.gov/regulations/laws/rules/6500-2900.html Have fun with that!

An aside on the economy:
"President Obama is going to be working in the broadcast booth during the All-Star Game. Everybody says, 'Oh, that's cute.' But let me tell you something. You know the economy is bad when the President has to take a second gig." --David Letterman

Collections, Colonoscopy. What's the Diff?

2009-07-22T06:41:00.000-07:00

It's a fact of life. No one likes to talk about a Colonoscopy or Collections. It just seems too unpleasant. But like that unmentionable medical procedure, it is hard to understate how important a good collection department is to your (fiscal) health. It's no fun, but you should thoroughly review the collection process on a monthly basis. Set up a sub-committee if you don't have the time.

If you have been around the financial industry for any length of time, you know that an effective collections policy and procedure often makes the difference between operating at a profit or a loss. That said, please keep in mind that your collectors are not miracle workers. While collectors are often your unsung heroes, if a loan is bad when you book it, there is little a collector can do to rescue the day.

Some basic effective collection rules: 1. Your telephone is your most effective collection tool - make a courtesy call as early as ten days delinquent. A follow up call AS SOON AS the member misses a "promised payment" is imperative. 2. Be nice and treat people with dignity and respect. Bad things happen to good people and in many cases, your member may just need some coaching to get through difficult times. 3. It's collections 101 that "your first loss is your smallest loss". Be careful when restructuring a loan, if you have to repossess the property at a later date, you could end up with a higher deficiency balance. 4. Do a charge-off "autopsy" on all charged-off loans. Why did the loans end up as a loss? Look for trends by loan officer, lack of collection follow-up, high loan-to-value, liberal loan policies, poor underwriting, etc. The key is to avoid making the same mistakes over and over.

Just a rhetorical question, please do not answer . . . how does one decide that one wants to become a Proctologist? Or a collector for that matter.

Loans are Down. What is it Costing You?

2009-07-20T05:44:00.000-07:00

If you are like most credit unions, your total loans outstanding are down from last year (or behind budget this year). But what does that mean in dollars and cents? Here's an easy way to ballpark it. Let's say the spread between your average loan rate and your average deposit rate is four percent (that's about average). Your lost income for each million dollars in reduced loans outstanding is (4% x $1million) $40,000 per year.

So how do you find your credit union's rate spread and loans outstanding? It's all public record. Go to http://www.ncua.gov/DataServices/FindCU.aspx. Search for your CU, click on Financial Performance Report, then ask for a two page FPR report. Your loans outstanding will appear on the Financial Summary Report, and your interest spread will be on the Ratios Report (use "Net Interest Margin/Avg Assets - it'll get you close). June's ratios won't be available for a while, so March will do. Need some help? Just post a comment below, I'll take a look for you.

Is your Interest Margin is lower than your peer group? Unless you are comfortable with your profit margin, or lack thereof, you might want to take a close look at your loan and deposit pricing. Many credit unions are finding that rates just don't matter right now, especially on the deposit side.

Riddle: What did the clueless CEO say to his Board about the credit union's high net worth ratio? CEO: "We'll keep offering the highest deposit rates and lowest loan rates until it's all gone"
OK, it's not quite a riddle that will win a $100 prize from Reader's Digest, but you get the drift.

Mortgage Disclosure Improvement Act Reminder

2009-07-16T13:42:00.000-07:00

A reminder: beginning July 30, the Federal Reserve Board's new Mortgage Disclosure Improvement Act (MDIA) goes into effect. The rule will change the way the Truth In Lending Act (TILA) is disclosed to consumers. Your mortgage people should be on top of this by now. More information can be found in an article by Richard Triplett at http://www.allregs.com/ealerts/updates090526_MortgageDisclosureImprovementAct-2MonthsEarly.htm.

Totally unrelated:

"Banks are hurting. I opened a new account, and the lady asked me for a toaster." --Bill Maher

"Good news for GM today. They emerged from bankruptcy and the newly appointed CEO said that the company will now build cars that Americans want. After hearing this, GM employees said, 'You can tell this guy's new around here.'" --Conan O'Brien

Your ALM Software is a Tool.

2009-07-16T13:02:00.000-07:00

As you know, interest rates are historically low, and due to the Fed's recent purchases of long-term bonds, some say rates are artificially low. This may skew your Asset Liability Management (ALM) analysis results towards the favorable side, so take caution when putting long-term mortgages or mortgage-related investments on the books. Rates are expected to hold steady through the summer, but can move up quickly once the economy turns around.

There are numerous ALM topics to discuss at your ALCO meetings, but here are a few . . . 1. A three-year income simulation; will net income be recover within a reasonable amount of time in a rising rate environment? 2. What will happen to your Net Worth if rates rise suddenly? 3. Projected repayment speeds on Mortgages will slow if rates go up (who would want to refinance if their rate is lower than the market?) are you in a position to hold mortgages for the longer term?

Your ALM software results can only take you so far. Spend some time reviewing your credit union's unique position in the marketplace and use ALM analysis as a tool to help make decisions regarding which products you will need to focus your marketing efforts on. Don't be afraid to sell to Freddie and Fannie to control the number and types of Mortgage loans you keep on your credit union's books.

Incidentally, if I had a choice, I'd prefer to be called Freddie rather than Fannie, even if I were a girl. But that's just me.

Dern-Near Free Money From the SBA.

2009-07-14T17:31:00.000-07:00

Could your Loan Department manager sell an SBA loan product that is interest-free to the borrower, has deferred payments for 12 months, and has no SBA fees associated with them? What if the loan has a five-year payback . . . remember we are talking zero interest here. What if I told you that the loan is 100% guaranteed by the SBA - AND the SBA pays the credit union Prime plus 2% on behalf of the borrower? You'd say "it sounds too good to be true", yes? Oh, but you have wandered into Obama Land where life is wonderful all the time.

It's called America's Recovery Capital (ARC) Loan Program. The ARC loan, which began in June 2009, is meant to help small businesses pay on existing debt and provide temporary financial relief so they can keep their doors open. There is a maximum loan amount of $35,000. What's more . . . non-SBA lenders can become ARC lenders. True story.

This is an excellent time to dip your toe into the business loan ocean. Even if ARC loans are the only business loans you ever make, it's hard to argue that this isn't a product your credit union should seriously consider offering. Not just offer, but SELL! Better hurry, the program runs out in September, 2010 or until funding runs out, which ever comes first.

You can find your nearest SBA district office at www.sba.gov/localresources/index.html.

Obama and the Dems: Shim the Jamb Plumb.

2009-07-13T07:44:00.000-07:00

Many of the new regulations that the Obama administration has proposed will begin shifting banks back to the "old" way of doing business, . . . closer to the way credit unions have always done business.

A side note: When I was a kid, my Dad built our family home. A sticker on the new windows read "Shim the Jamb Plumb" when installing. To me it sounded like a bunch of random words; I even thought it might be a joke. Funny stuff! But, it means you should be sure the window is level at the bottom. Hence the above headline. It's more fun to say "shim the jamb plumb" than that old worn-out sports reference, "level the playing field", am I right?.

Proposed banking rule changes include stricter capital requirements (credit union capital requirements are already more strict than bank's) and a requirement to require originators of asset-backed securities to retain at least a 5% interest in securitized loans. This 5% rule should help "keep in check" the "gunslinger" mentality of banks who made risky loans only to dump them off their balance sheet. Also, due to a FASB rule, banks may soon have to bring billions of these loans, currently held in subsidiary companies, back on to their balance sheet. This and the 5% requirement may have the effect of leveling the playing field (sorry, old habits) by allowing for fewer loans to be booked while still staying within capital limits.

What does all of this mean to the credit union industry? Once the economy begins to heat-up and turn around, credit unions may be in a position to grab some market share back from the banks in our historical "niche", consumer loans. Start forming (improving) great relationships with reputable auto dealers and realtors in your market, it just may pay off in the long run.

Interest Rate Chonicles. Treasury Auction Watch.

2009-07-07T10:41:00.000-07:00

So you love these low interest rates? Great news, then! The economy continues to suffer and last week's data showed the U.S. economy lost almost half a million jobs in June, as a result, it is widely expected that the Federal Reserve will keep interest rates near zero for some time. I hope you're happy.

Interest rates on short-term Treasury bills fell in Monday's auction (july 7th,2009). The rate on six-month bills dropped to the lowest level since late December, while three-month bills also dipped. Rates had been climbing due to increased confidence in the economy.

There also will be a $19 billion 10-year bond sale on Wednesday and an $11 billion 30-year auction on Thursday. As discussed in our June 18th, 2009 blog, mortgage rates closely follow the 10-year bond rates. Want to predict the future? Impress your friends? If the 10-year demand is low, rates will move up and mortgage rates will likely follow and vice versa. The chart that demonstrates this trend is worth a second mention and can be found at http://www.hsh.com/images/forgetfed.gif.

Amendments to Regulation D - The Forgotten Regulation

2009-07-07T06:13:00.001-07:00

I was reading the recent amendments to Reg D (Reserve Requirements of Depository Insititutions) the other day and I heard this thump!. It took me a second to realize that it was my head hitting the desk. It's not a particularly interesting Regulation, even by Regulation standards. Nonetheless, there are a couple of minor changes that will affect you.

About the Reg: Reg D seems to be a grab-bag kind of regulation. When someone comes up with a rule that doesn't fit nicely into another Reg, someone says - "just give it to Reg D, he doesn't have much to do". The Feds use the reporting requirements of Reg D to track the money supply, it details some restrictions related the sale of securities, sets the amount of money fiancial institutions must set aside (reserve requirements), and restricts the number and types of transfers and withdrawals from savings accounts.

Here's a Trivia Question: What makes a savings account different from a demand (checking) account? Both can pay interest, and both can be accessed with a check, debit card, etc. So how are they different? I'll bet your CEO doesn't know the answer - just for fun, ask him.

The answer appears right here -> While normally you allow your members to withdraw money upon demand from their savings account, by regulation you must reserve the right to require a seven day notice for a withdrawal from savings (it should be in your disclosure). Money in a checking account must be made available on demand. Also, the types and number of withdrawals that may be made from a savings account is limited. This is where one of the new Reg D revisions come into play: the final amendment increased from three to six the number of third party transfers or withdrawals that can be made from a savings account each month. Six, wow, six. Other amendments include interest on "excess balance deposits" held a Federal Reserve Banks.

What about reserve requirements? Chances are, you have enough cash in your vault to satisfy the requirement. All credit unions are required to file a periodic Reg D 2900 report that helps you determine your reserve requirement. Hey, what was that thud?

Here is a link to the revisions: http://www.federalreserve.gov/newsevents/press/monetary/20090520b.htm

The End of Courtesy Pay as We Know It?

2009-07-01T16:01:00.000-07:00

On May 27th, 2009, three influential members of congress wrote a letter to Ben Bernanke requesting that the Federal Reserve "immediately address manipulative clearing practices" related to overdraft fees. Consider this: Today, President Obama sent Congress a bill that would create the Consumer Financial Protection Agency, which he said would better protect Americans from unscrupulous practices. And NSF fees are in the cross hairs.

Not too worried about it? Most credit unions would be in the red without fee income, and quite often Courtesy Pay and NSF fees provide the lion's-share of non-interest income. There is some talk of disclosing fees as a finance charge - this would mean you can no longer charge, say, $25.00 on a $50.00 transaction. Take a look - how would your income statement be impacted if you lost 10%, 20%, 50% or more of your NSF fee income? You might be surprised. A contingency plan may be in order.

My guess? SOME kind of "consumer protection" is inevitable related to NSF fees. Probably an "Opt In" requirement as well as restrictions on "series of fees" (fees caused by fees). But you might not want to go with my guess . . . I had some serious money on Hillary.

Here's the link to the letter. Read it and weep. http://www.federalreserve.gov/SECRS/2009/June/20090604/R-1343/R-1343_060209_21124_293484117638_1.pdf

And the Answer is . . . Rumpelstiltskin !!!

2009-06-29T09:21:00.000-07:00

The question is - when and how much should you raise your consumer loan interest rates? Rumpelstiltskin obviously isn't the answer, but sometimes it seems like it's about as good a guess as any. The miller's daughter (trivia question - what was her name?) made an informed choice when she guessed Rump's name and won a color T.V. or a trip or a car. I don't recall all the details.

Anyway, setting interest rates sometimes feels like a guessing game. Due to the likelihood of rising interest rates, you have some decisions to make regarding loan rate increases. Some choices: wait until external rates begin to rise and lag behind the market (to try to pick up market share with lower rates), raise rates in concert with the Fed rate increases, or start raising rates now.

Setting interest rates depends upon many factors including your credit union's philosophy, your ALM position, etc. Just remember that because you are "stuck with" loan terms currently on the books, your overall loan portfolio yield won't change all that quickly.

Here's my two cents: for several reasons, the market can currently bear fairly high loan rates compared to deposit rates. Shop the competition and squeeze out as high a rate as you can now and stay on top of it, raising rates as aggressively as possible. This way, you will be well-positioned once rates move up.

Interest Rate Chronicles

2009-06-29T05:19:00.000-07:00

As you undoubtedly know by now, on 6/24/09, the Fed left the fed fund rate unchanged at a range of zero percent to .25% and hinted that the rate would remain low for "an extended period". They also indicated that "the Committee expects inflation will remain subdued for and extended period". The Fed is obliged to talk inflation down - the very belief that inflation is expected can trigger a rise in prices. Inflation is kept in check currently by slightly negative growth, however, the third and fourth quarters of this year are expected to grow by .5% to 2.0%.

An interesting tidbit - the Fed has never raised rates when the economy has negative job growth. But job losses are slowing, and it is projected that if the job situation continues to improve at the current rate, we could see the unemployment situation stabilized by the end of the year and turn the corner by the first quarter of 2010. In addition, Fed Funds futures indicate that the Fed will begin raising rates in January 2010.

Inflation is in check for now, but as soon as things heat up a bit, it will be difficult for the Feds to drain all the money that they pumped into the economy. There is probably a joke related to "drain" and "Feds" and "money" but it's just not coming to me at the moment!

Electronic Funds Transfers (EFT) aka Regulation E.

2009-06-26T07:25:00.000-07:00

Due to the advent of electronic banking, we need to keep the EFT Act in mind any time we add or change a product. The Reg was put into place to protect the consumer from the likes of YOU! The Act places virtually all liability for EFT-related errors on the financial institution.

Regulation E outlines the rights, liabilities, and responsibilities of the credit union and members in electronic fund transfer systems such as ATM transfers, bill-payment services, point-of-sale (POS) terminal transfers in stores, and pre-authorized transfers from or to a consumer's account (such as direct deposit and social security payments).

You say you love disclosures? Reg E has plenty, including: the Initial Disclosure, changes in terms, on statements, at electronic terminals, on receipts, pre-authorization, and more!

The EFT Act applies to all financial institutions. Here's a link to the entire Act on FDIC's site. http://www.fdic.gov/regulations/laws/rules/6500-3100.html

Do you have an EFT-related member complaint dispute? Read your EFT disclosures before deciding how resolve to the problem. It could save you from legal/regulatory headaches.

Corporate Stabilization TMZ.

2009-06-24T11:12:00.000-07:00

The NCUA held a webinar today to clarify the effects of the May 20th, 2009 amendments to the Federal Credit Union Act. Just a few points of interest:

The impairment to the NCUSIF will not cost natural credit unions any less - we're just putting it on our VISAtm card. The amount will be borrowed from the Treasury by the Stabilization Fund and must be repaid over seven years.

If you assessed the full .99% NCUSIF impairment and premium in the first quarter, congratulations! You did the right thing. In the second quarter, you will book "non-operating income" for the recapitalizaton of the NCUSIF. While the net effect is zero, this is not a reversal of your first quarter entries.

BOTTOM LINE: The NCUA estimates that NCUSIF related expenses for 2009 will be .15% instead of .99% of your insured deposits.

You say you'd rather just take the full "hit" this year rather than deal with it for seven years? You don't have that option, Macho (Wo)Man.

And yes indeedy, expenses related to Stabilization can change. Any bets on whether it will cost us more or less?

You need more information. NCUA Letter No: 09-CU-14 can be found at http://www.ncua.gov/news/express/xfiles/LTCUs09-CU-14CorpStabilizationFundImplementation.pdf

How to Avoid a $500,000 Penalty.

2009-06-23T05:12:00.000-07:00

OK, the headline is shamelessley sensational, but who would read about "Placing Holds on Checks"? Remember the cartoon strip "Calvin and Hobbs"? They would come up with games where they would make up the rules as they go; things would get pretty convoluted and quite hilarious! Regulation CC, or the Expedited Funds Availability Act kind of reads like that. Definitely a regulation that was written by committee.

Financial institutions are limited to the types and lengths of holds on checks and "must disclose their hold policies to all account holders, and make the policy available in written form upon request by any customer. It must also be provided at the time of opening of all new accounts. Additional disclosures are required on deposit slips, at ATMS, and when policy is changed in any way". Wikipedia.

Wikipedia has a pretty good chart that details the rules related to check holds. http://en.wikipedia.org/wiki/Expedited_Funds_Availability_Act

Make sure that your Reg CC policy is posted in your lobby, policies and disclosures are up to date, and be sure employees are TRAINED to understand the requirements. It IS true . . . penalties for non-compliance can run as high as a half a million dollars!

Mortgage Rates and Ten-Year Treasuries are BFF (Best Friends Forever)

2009-06-18T11:58:00.001-07:00

When it comes to determining where long-term mortgage rates are headed, forget the Fed Funds rate that we hear about when the media says "the Feds are cutting (or raising) rates". Conventional Mortgage rates move lock-step with the ten year Treasury bond rate. You can check the rate online using the ticker symbol "TNX". By the way, the ten-year rate is up 0.1870 to 3.83% today.

Follow this link to view a chart that shows the correlation between the two, and demonstrates how the Fed Fund rate doesn't affect mortgage rates. http://www.hsh.com/images/forgetfed.gif

But no one is saying that the Fed Fund rate doesn't matter. Short term borrowing and savings rates are strongly influenced by the Fed Fund rate.