MADISON, Wis. - When it comes to members with mortgage problems, there is a disconnect between what NCUA is saying at the board level and what examiners are saying when on-site, credit unions are reporting.
The disconnect issue-one that has been raised many times over the years-is coming to a head as more credit unions are trying reach out to members facing foreclosure or other mortgage problems, as members of the NCUA board have advocated in public remarks, only to find their hands being slapped-or worse-during examinations.
"The continual issue is that the board is talking about lofty principles goals and objectives that sound great, and when it gets time to follow through, examiners are taking a different position," said Mary Dunn, senior vice president of CUNA. "And I think that is an issue that NCUA needs to address."
According to Dunn, a number of CU executives have complained about examiners tying their hands when they try to keep their members in their homes by taking on workout loans. Examiners are asking for increased reserves and capital to absorb the losses the institutions would take by crafting the workout loans-an obvious Catch-22-as most credit unions with membership in foreclosure problem are facing declining revenue as the result of the same housing market.
"Credit unions have been concerned that their examiners are wont to micromanage their ability to help their members," Dunn said. "[They] have told us that the examiners are reluctant for them to take on a whole lot of problems."
Board member statements have frequently failed to translate into change amongst the field workers, CUs have said, but that is not necessarily a result of the field force ignoring their leaders.
"The board members are political employees and they don't have hands-on financial institution employees," pointed out John Ruffin, CEO of Robins FCU in Georgia and a former NCUA regional director.
Ruffin was on the other side of the fence during the member-business loan problems of the 1980s. He attributed much of the disparity between the rhetoric and practice to the training examiners received long before the current credit crisis began, noting that many in the field simply stick to the book when it comes to signing off on risky finance options for individuals facing foreclosure.
"I think it's largely based on the training the examiner has, to look for safety and soundness issues. And workout loans, while they are noble in principle, are going to reflect on the bottom line if they go bad," said Ruffin. "Examiners might take exception with a credit union that did a large number of workout loans and they are showing up in the books as delinquents and charge-offs. It is hard to do a fast rule that covers all cases. Both sides need to understand that there is a give and a take and you need to look at each situation and judge it on its merits."
NCUA Director of Public and Congressional Affairs John McKechnie confirmed Ruffin's point, saying that there needs to be a balance between assisting members and ensuring solvency-and that can only be done on a case by case basis. "Workout arrangements depend on the specific circumstances of each situation," he said. "While prudent workout arrangements are encouraged, the circumstances must reflect the arrangement is in the best interests of the member and the credit union."
But McKechnie also insisted NCUA has been unwavering in its position on helping members with mortgage troubles as outlined in a number of Letters to Credit Unions including "Working With Residential Mortgage Borrowers" (07-CU-06), "Subprime Mortgage Lending" (07-CU-09) and "Managing Risks Associated Home Equity Lending" (05-CU-07). "The[se] letters provide NCUA's general guidance, with each credit union's situation being assessed case-by-case by NCUA field staff," he said.
Dunn agreed that the regulators are simply trying to do their jobs in a tough financial climate and acknowledged the natural tension between regulator and industry, but nevertheless called on examiners to carefully evaluate their practices.
"There is a fine line between micromanaging and assessing safety and soundness. The regulators need to make sure that that balance is maintained," she said.
One such challenge when it comes to balance is the problems in the overall mortgage market. "I realize that when an area goes down in terms of real estate values, that affects all the mortgages that are already on the books," said Ruffin. "[But] it's very difficult for an examiner to say, 'Let's follow the desire of the board and do workout loans,' when the credit union has made a $20, $40, or $50 million loan for real estate investment purposes."
Added CUNA Senior Vice President Mary Dunn, "They want to do their job the best that they can, there is always going to be some tension from the regulators."
MORE
To read the previous three stories in the series on workout loans go to www.cujournal.com and type the following bolded terms into the search function at: the top right of the home page:
Arizona FCU Forms Team To Head Off Problems Later (July 7)
Ent’s Member Solutions Group Is Tasked With Workout Loans (July 14)
Why 1 CU Has Dedicated Month To Addressing Foreclosure Risk (July 28) (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com/ http://www.sourcemedia.com/
