SALT LAKE CITY — A prediction that it would all "blow up some day" has come true.
Kris Mecham, president of Deseret First CU, and CUNA's new chairman, told Credit Union Journal, "We were suspicious there was a bubble on the horizon, we just didn't know how big it would be. From our credit union's perspective, we watched a number of no-doc real estate loans going through. We never got into that, but my real estate guy told me repeatedly it would blow up some day-that the no-doc loans would cause a problem."
Deseret First is a WesCorp member and Mecham said he's "not happy" that the credit union will be writing off $500,000 in paid-in capital in addition to other write-offs. "We will have to pay $4.4 million according to the most recent number NCUA came up with. That hurts," said Mecham.
From the perspective of CUNA, he said the concern over the health of corporates has been ongoing, and CUNA is awaiting the findings of the work being done by its Corporate Task Force.
"From my perspective, I believe the corporate system needed to be fixed," Mecham said. "Did it need to be fixed the way NCUA did it? I don't think that was the only way to solve the problem. I wish NCUA had worked with the trade associations to identify other possibilities rather than springing this on the entire system. NCUA said its desire is to hold the securities to maturity, which is a positive thing to me. I'm also pleased that NCUA has stated it is willing to seek restructuring of CLF rules to protect the premium portion of the expense, and it is willing to expand the replenishment so credit unions don't have to pay within one calendar year."
Mecham added, "This is my opinion, not necessarily CUNA's, but I think some adjustments could have been made so the entire impairment did not have to be written off this year. The banking system was given a special assessment of 20 basis points, and they yelled loudly and in two days it was changed to 10 basis points, and they were given seven years to address the impairment. I wish NCUA would have taken a look at the whole thing, looked at how FDIC handled their impairment, and used some regulatory powers to suspend accounting rules under a one-time crisis and worked things out."
Mecham has concerns over intangible issues, as well. "There is a public relations side that really bothers me," he said. "For months people have heard about problems with the banks, but now the story will come out that two-thirds of credit unions lost money in 2009. That is only part of the story, but that is the part the public will hear and remember.
"I think there are a lot of brighter days in front of us, but when there are problems we need to get together to solve them," he continued. "We will survive."
