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MBL Underwriting, Microlending Potential Highlighted In NCUA Webinar

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ALEXANDRIA, Va. (9/26/13)--Credit unions developing a new member business loan (MBL) program should keep it simple, National Credit Union Administration staff said during a Wednesday webinar that touched on MBL underwriting, microlending, and other business lending topics.

Click to view larger image The above Filene Research Institute graphic was used to demonstrate how credit unions and their members can benefit from member business lending. Click the magnifying glass symbol to the left of the image for a larger view.
The webinar was presented in part by staff from NCUA's Office of Small Credit Union Initiatives and NCUA Region IV's division of special actions.

MBLs offer credit unions a chance to increase their own loan and fee income, and give them a chance to deepen community relationships, the agency presenters noted. According to NCUA statistics, a total of 2,125 credit unions have reported making MBLs, with an average portfolio size of $19 million. The average MBL is $128,000, and the average delinquency rate on MBLs is a low 1.76%.

Credit unions that are entering the MBL market must be ruthless in sticking to their chosen area and size of lending, NCUA staff said. Recognize that a credit union "cannot be everything to everyone," and do not make your credit union the lender of last resort, the agency hosts added.

Another presenter, Jerilee Beaudoin, director of commercial services for SEFCU, Albany, N.Y., outlined the underwriting standards her credit union has established for its own lending program. An MBL program must list specific goals and identify program limits and restrictions, including aggregate MBL program limits, geographic area restrictions, and industry and loan type limits, she said. The credit union should also address how program weaknesses and limitations will be satisfactorily addressed going forward, and establish a timeline and budget for the MBL program.

While most credit unions do some type of microlending right now, Dave Grace, managing partner of Dave Grace & Associates, encouraged credit unions to increase this practice and enter what is a growing field. Eighty-eight percent of all U.S. businesses are considered microbusiness, and they employ 25% of the U.S. work force. Access to capital is the largest growth barrier for these businesses, and there is limited competition in this area, he said.

Further, microbusiness loans of $50,000 or less are exempt from the MBL cap under NCUA regulations. Grace said that microbusiness loans that are made now can grow into larger MBLs later on as businesses grow.

To make successful microloans, Grace suggested credit unions should:
  • Price the loans accordingly;
  • Start borrowers on short loan cycles;
  • Start with smaller amounts; and
  • Collect on these loans as soon as they go bad or before problems start.
Credit unions can also consider offering business development services for microloan borrowers, and offering different types of business accounts, tax preparation services, and other benefits to these borrowers.

Credit unions may need to develop alternative underwriting methods for microloans, and should price and provision for larger loan losses, he said.

An archived, closed-captioned version of the MBL talk will be posted on the NCUA home page within two weeks.

Mortgage Market, Employment Issues Detailed In NCUA Update

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ALEXANDRIA, Va. (9/26/13)--Upward interest rate pressure could impact credit unions by reducing the market value of some long-term, fixed-rate assets and altering mortgage market conditions, National Credit Union Administration Chief Economist John Worth said in a new agency YouTube video.

The interest rate increases are tied to recent moderate economic growth and Federal Reserve statements, Worth noted. These increases helped to reduce total credit union unrealized gains by more than $3 billion in the second quarter of this year, he said.

General interest rate changes are also reducing the total number of mortgage refinance applications, and Worth said this change may have an immediate impact on fee income at some credit unions and depress real-estate loan growth for the rest of 2013.

The NCUA video also takes on labor market improvements and the NCUA's quarterly U.S. map review.

The video is the latest in a series of YouTube videos to inform the public and credit unions about general economic and credit union specific developments.

The videos can also be viewed on the NCUA's YouTube page by using the resource link below.

Cordray: Fin. Lit. Is Fundamental

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MADISON, Wis. (9/26/13)--"Financial education should be as fundamental as the education we are all required to receive in U.S. history and government," Consumer Financial Protection Bureau Director Richard Cordray said at a Wednesday Financial Literacy and Education Commission Field Hearing hosted by the University of Wisconsin--Madison.

"Within the framework of our republic, we have built the greatest system of economic liberty in the history of mankind. Yet it will only endure if we take the steps necessary to strengthen that system from the bottom up, starting with the individual. The financial services marketplace is constantly evolving in complex ways, and managing one's finances is a lifelong endeavor," he added.

Lois Kitsch, national program director for the National Credit Union Foundation, and Jennifer Block, representing Royal CU, Eau Claire, Wis., took part in a panel discussion entitled "Building youth financial capability through experiential learning." Kitsch presented the NCUF's own programs during the panel.

Credit unions provide financial counseling to more than 1.5 million consumers each year, according to a National Credit Union Foundation report entitled "Credit Unions: Focused on Financial Capability across the Nation." Early-age financial literacy efforts are a key part of this counseling, as credit unions hold nearly 25,000 annual educational presentations for more than 600,000 students, the NCUF wrote.

Cordray in his remarks told the more than 100 attendees that teaching children about money and their finances "should not be reserved to a few games of family-night 'Monopoly,' where children are taught the benefits of buying up Boardwalk and Park Place."

Parents, he said, need to be engaged as their children are learning to master the concepts of personal financial management. Americans must also work to fill the financial literacy gap by pursuing greater financial education in the school system.

To improve in-school financial literacy efforts, the CFPB said integrated curriculum must be developed so, for instance, the benefits of compound interest are understood in math class, economic costs and risks are taught in social studies class, and English class essays include topics involving money. Cordray added that:
  • Financial education must start early and must be continuous;
  • Financial concepts must be incorporated into standardized tests that states already administer;
  • Teachers and schools must be supported with the necessary training to deliver sound financial instruction to students.
On-campus credit union branches held more than $34 million in funds from 111,500 student members as of 2010. Nearly 5,000 student workers received on-the-job training experiences at those 1,400 in-school credit union branches.

In total, credit unions invested more than $140 million in financial literacy efforts in 2010.

(For another story involving financial literacy, see: 44% Of Wisconsin School Districts Require Fin Lit Course.)

'Inside Exchange' Gives State Advocacy Insights

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WASHINGTON (9/26/13)--The Credit Union National Association and state leagues continue to address top issues like the credit union tax status when bills are introduced at the state level, and they often coordinate their advocacy efforts with varied state-by-state legislative schedules. In the latest edition of CUNA's "Inside Exchange" video series, Pat Sowick, CUNA senior vice president of league relations, details the resources that her department provides to help credit union leagues in these efforts.

"The leagues developing relationships at the state level is very important, because almost half of state legislators are sitting up the Hill right now, on Capitol Hill, as members of Congress. So fostering those relationships really benefits credit unions in the long run. If they can start in Congress with some type of knowledge about credit unions, and appreciation for credit unions, we're going to do a lot better here in D.C., too," Sowick said in the latest "Inside Exchange" video segment.
This latest video, hosted by CUNA Executive Vice President of Communications Paul Gentile,  is part of CUNA's "Inside Exchange" series, which offers periodic, topical videos on issues important to credit unions. CUNA suggest members can use this resource for education purposes and as a great tool to keep staff and board informed on important issues.