What Lies Ahead For Gulf? A National Perspective...

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NCUA reports that all credit unions affected by Hurricanes Katrina and Rita are back in operation either out of their own facilities or at remote and other CUs' facilities, but the long-term affects of these storms are already beginning to create rumbles that could be with the credit union movement for years to come.

"This has been an event well beyond anything we have had in the past, so we can only speculate on some of the long-term affects," said NAFCU Economist Dr. Tun Wai. "It will be years before we know the true aftermath of the storm."

Once credit unions in the beleaguered Gulf Coast region have gotten past the initial scramble to get back up and running to serve their members, they will see a number of things happen to their lending, their liquidity and other aspects of their operation-and eventually, that can have a ripple effect on the entire movement, Wai suggested.

"On the lending side, you've got a number of instances where the collateral has disappeared, be it cars or houses," he noted. "And in some cases, with all the evacuations, the members themselves disappear."

That means collections can be a real problem, to say the least. But that doesn't necessarily mean these credit unions will be strapped for liquidity.

"Checks from FEMA and from insurance are going to come into these credit unions. Members will deposit those checks, and in some cases, they won't spend the total amount. In other cases, they'll spend more than that amount," he offered. "In New Orleans, in particular, what it will come down to is jobs. If you have members with no car, no home and no job, how do you help them?"

All credit unions have lending and underwriting standards, but as credit unions seek to help members rebuild their lives, CUs likely will be making loans that "are a little more subprime," which can increase their exposure, Wai observed.

While the rebuilding of New Orleans represents a massive challenge, it also represents a huge opportunity, if it's done right, Wai advised.

The Chinese Example

"If you look at rural China as an example, you'll see how this could work. It's extremely expensive to lay phone lines, cable lines, the lines for communications. So, China went wireless. The result: cheaper, faster, better connectivity," he related. "This is the opportunity to be more efficient because it's like starting from scratch."

As credit unions come out of the initial disaster recovery stages, the focus will move to longer-term problems and long-term viability.

"The first matter of priority, of course, was getting up and running, recovering the information-I heard about one case where an examiner had to break into someone's house to get the data-and contacting members," Wai said. "NCUA has bent over backwards to help with this and to offer grace periods and other things to help credit unions help their members. The examiner force did a tremendous job of getting down there. I heard one examiner is actually running a credit union right now."

And credit unions have bent over backwards to help their members. But in some cases, that could mean some credit unions will either cease to exist "as we knew them"-or cease to exist altogether.

"Think of it like a church. What happens when the church itself disappears and the pastor can't find his flock?" Wai asked. "Well, either you find another church, build another church or find new members. The problem is, it's difficult to start over when you have nobody there to serve. You could have a credit union in limbo right now. You have to ask what are the assets on the books and how long can the credit union carry them. At what point does the regulator say 'we can't let them continue to float."

And as those credit unions in limbo ponder those questions, the initial ripple effect of Katrina and Rita begins to be felt by other credit unions.

"You have two hurricanes, two areas and only so much federal money, and the question is how will that be prioritized," he suggested. "There will be a ripple effect on the entire system. You have people spending money, donating money, and they're taking that money of out their savings. We are going to see that kind of extraction take place all across the country."

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