ALEXANDRIA, Va.-It's been probably the worst 18-month period in credit union history, but don't expect things to get better anytime soon, that's according to Melinda Love, the new chief examiner for NCUA.
As director of NCUA's western Region Five and its 1,200 credit unions for almost six years, Love has had a unique perspective on the unfolding crisis among credit unions. And she doesn't see it ending any time soon.
"Most credit unions, and most NCUA people, still expect things to get worse for awhile," said the 52-year-old NCUA executive, who is in the process of moving from Tempe, Ariz., where she oversees CUs in Arizona, California, Nevada and eight other states, to Alexandria, Va., where she will become director of NCUA's office of examinations and insurance, the heart of the credit union regulator.
Signs Of Turmoil Continue
The signs of continued turmoil among CUs, at least in the West, are evident, she said. She cited still-rising delinquencies and loan losses and the need to move increasing amounts into loan loss reserves.
In addition, the losses that have been pronounced among residential mortgages are spreading to other areas, like commercial mortgages, auto and credit card loans, she said. "While California, Nevada, Arizona and Colorado are leading the pack, some of these issues are starting to creep up in Utah, Washington and Oregon and other areas," said Love.
"It starts in California, then kind of goes through the region, then hops across the country to the East Coast, then goes back to the middle of the country," is how the 23-year NCUA veteran compared the current economic downturn to the last major recession in late 1980s and early 1990s.
While CUs today have a lot more capital to withstand problems, they are much more exposed because of greater diversification and complexity, she explained. Other factors also convince her the worst is not over yet. One is, while the brunt of the subprime mortgage failures may have occurred in the past year, many CUs are exposed to the unfolding crisis among so-called Alt-A mortgages. "Some credit unions don't even realize that they have Alt-A mortgages," said Love, of the low- or no-document loans approved during the mortgage spree.
As she moves into the role of chief NCUA examiner Love has some advice for credit unions.
Historical Models A Poor Guide
For one thing, the unprecedented economic environment means historical models are often a poor guide to how a loan portfolio may perform. CU managers need to keep current on the performance of loans and the member/borrower, whose conditions may have changed since the loan was originated.
In addition, managers need to keep abreast of environmental factors that may affect their portfolios or individual loans; lay-offs in the local economy; plummeting home values, and create a comprehensive plan on loan modifications.
CUs, many of which may never have had a foreclosure, should develop plans to manage foreclosures. Have a foreclosure checklist. Plan how to manage a foreclosure pipeline. Set objective standards when to foreclose and what to do with properties when you do foreclose, Love suggested.
She also cited the fears of some executives of falling into the under-capitalized category and the potential for them to take unreasonable risks to earn income in order to avoid prompt corrective action. "Credit unions are so afraid of PCA they may do something counter-productive," she suggested.
In ascending to the job of chief examiner at NCUA, Love will be succeeding David Marquis, who is moving over to be the agency executive director, or chief operating officer after more than a dozen years as director examinations and insurance.
A seasoned NCUA executive, Love served as regional director of the agency's Region Five, as well as head of Region IV and Mid-Atlantic Region II. She has also worked as deputy director of examinations and insurance, principal examiner, problem case officer, supervision analyst, supervisory examiner and acting director of special actions.
She is taking the helm at one of the worst times in CU history. "There's more tension now in the industry then there has been at any time in my career," said Love, citing not only the financial problems at many credit unions but also the uproar in the industry over NCUA's plans to finance a $5-billion rescue of the corporate credit unions with a premium assessed all federally insured credit unions. She said will be mindful of the outside tensions as shoe moves to the chief oversight role for the agency's 900 or so examiners.
A career as a CU examiner has made Love a true believer, not only in credit unions but in NCUA's role. "I get kind of gushy about our mission," she said. "I think what we do is pretty important. People don't always see what we do, but it is important."
