Wednesday, April 8, 2020

Are you ready for the move away from the LIBOR standard?

WASHINGTON—The coronavirus pandemic is dominating the agendas of every credit union decision-maker, but there is another change on the horizon that deserves attention: the move away from the LIBOR standard.
With the long-time pricing standard, the London Interbank Offer Rate (LIBOR), being phased out and a new financial reference rate taking its place, one expert says the biggest concern is not knowing how big the CU exposure may be.
LIBOR, the global benchmark short-term interest rate, which has governed global financial transactions since the 1970s, will be discontinued by the end of 2021.
Samira Salem, a CUNA senior policy analyst, said she is worried over the degree to which credit unions will have to invest both time and money in making the shift to a new reference rate, simply because no one has yet to quantify how many credit unions and how much of their products are tied to LIBOR. 
And that exposure, too, could lead to potential lawsuits, she suggested, due to a lack of fallback language in many credit unions’ current contracts that include language referencing LIBOR.
“The thing is we really don't have a good handle on credit unions’ exposure,” said Salem. “It's important to get a handle on this. There is no language that explains the difference between LIBOR and an alternative rate and how that's going to be calculated.
“There certainly is legal risk,” Salem continued. “It is not clear how this situation will be resolved yet, but I am certain there is work being done now looking at this very issue. As I said, there is legal risk if neither party is willing to accept the change—either the credit union agrees to reduce its margin or the borrower pays a higher rate. This is the financial risk.”
LIBOR’s Replacement
Replacing LIBOR will be a new abbreviation, SOFR, for Secured Overnight Financing Rate. SOFR was officially adopted by the Federal Reserve in December 2017 as a replacement for the LIBOR standard, which has been widely used by financial institutions as a basis for setting—among other things—variable rate loans. The Consumer Financial Protection Bureau has estimated there is $1.3 trillion in consumer loans with an interest rate based on LIBOR, the bulk which are for residential mortgages.
According to the CFPB, LIBOR is being phased out, because the rate is based on transactions among banks that don’t occur as often as they did in prior years, making the index less reliable and credible.
Salem emphasized NCUA is paying close attention to the transition away from LIBOR within credit unions, making it one of the agency’s supervisory priorities in 2020. Board Member Mark McWatters, during a recent open board meeting, shared his concerns.
“The reason it’s high on our list is credit unions may not be paying attention to this issue; that could be the source of some embarrassment if LIBOR is to go away and the credit union community isn’t aware of it,” stated McWatters. “So, we have questions out to credit unions about how often they use LIBOR and how might they be affected by the transition.”
Earlier this year in remarks to a credit union meeting in Hawaii, McWatters added, “To me, the interesting issue isn’t the transition issue. For years people who worked with LIBOR intuitively understood the risk. You could price it in your head and had a feel for the underwriting in your head. When it becomes something else, how does that translate? How are you going to price your credit with the confidence you are properly accounting for the risk involved. In the world of pricing risk on credit, a few basis points can be the difference between a good loan and a bad loan.”

Salem said there are significant changes credit unions will have to make to their operation systems and loan documentation to accommodate an alternative base rate.

Significant Changes
“It's going to be expensive,” said Salem. “So, how many credit unions will get hit by this and how expensive it will be over the entire system is not known today. If we can clearly determine the level of exposure we’ll get a better sense of the total cost and the total amount of work that needs to be done. There is a financial risk here, as there are a wide range of consumer products that can be affected—such as adjustable rate mortgages, student loans, home equity lines, and credit cards.”
CUNA, Salem said, has completed a “back-of-the-envelope calculation” to obtain some sense of CUs’ exposure.
“We determined around 17% the entire credit union loan portfolio is made up of adjustable-rate loans, and you can adjust that percentage up or down,” Salem said. “However, what we really don’t know is how many credit unions have loans tied to LIBOR.”
Slow Adoption
Salem reminded NCUA is encouraging credit unions to transition away from anything that uses LIBOR as a reference rate.
“The Federal Reserve has been publishing SOFR for a while, but its adoption has been slow,” Salem said. “Right now we're in the transition phase—the end of 2021 is the end date, the Federal Reserve is encouraging the use of SOFR, and financial institutions are looking at integrating fallback language into existing contracts. We're right in the middle of all this. Overall, I’d say this is a hazy area right now.”
New FSAB Guidance
To help ease some of the burdens in the move away from LIBOR, the Financial Accounting Standards Board (FASB) has released new guidance designed to “ease the process of” migrating away from reference rates that include LIBOR as well as a migration to new reference rates.
According to FASB, the guidance addresses operational challenges that are designed to “simplify matters going forward and help reduce transition-related costs.” 
The update will also help reduce transition-related costs, FASB said.
The guidance will be in effect through Dec. 31, 2022, FASB said, to help various parties during the reference-rate transition period. 
FASB said the new guidance provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.
The guidance can be found here.

Tuesday, April 7, 2020

NCUA Summary of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

Letter to Credit Unions (20-CU-07)
Summary of the Coronavirus Aid, Relief, and
Economic Security (CARES) Act

Dear Boards of Directors and Chief Executive Officers:

This letter provides vital information about key changes affecting your credit union due to the recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Read the Letter to Credit Unions

The Coronavirus Aid, Relief, and Economic Security Act was signed into law by President Trump on March 27, 2020. The CARES Act contains numerous provisions to help workers, families, and businesses, including unemployment insurance benefits and loan guarantee programs. It also contains provisions that assist severely distressed sectors of the economy. Some of the CARES Act provisions that affect credit unions are described herein.

CUNA's Recession Forecast Deepens - Steven Rick

CUNA has forecast a recession twice as deep as the one it predicted just two weeks ago as unprecedented jobless claims signaled the American economy had come to a near standstill.
The forecast is part of the report, “The Coronavirus (COVID-19) Recession & its Impact on Credit Unions,” which CUNA economists began drafting more than a week ago, and were forced to continue revising before the ink dried on previous drafts.
Jordan van Rijn
“It is increasingly looking like the recession could take longer than originally anticipated,” CUNA economist and chief author Jordan van Rijn said in an interview. “It’s hard to imagine social distancing will just stop in May, June or July.”
“Many businesses may not be able to come back, and those jobs will disappear permanently,” he said.
Steven Rick
CUNA economists met Friday, April 3 with CUNA Mutual Group Chief Economist Steven Rick to revise their March 24 forecast, when they switched course from mid-February’s prediction of a 1.8% gain in real U.S. gross domestic product this year to a brief recession sending U.S. GDP down 2.25%, unemployment peaking at 6.5% and credit union loan growth slowing to 3.5%.
On Friday, they forecast a 5% drop in GDP for the year, with a slight downturn in the first quarter and “a historically unprecedented” 20% annualized drop for the current quarter.
“Assuming the coronavirus peaks in the second quarter and the U.S. gradually resumes economic activity shortly thereafter, economic growth should bounce back slightly in the third and fourth quarters,” the report said. “Growth, however, is likely to remain muted throughout 2020 as supply chains rebuild, many businesses close indefinitely and consumers remain cautious.”
The report also forecast:
  • The unemployment rate to reach 15% by September, representing the loss of approximately 18 million jobs. “However, unemployment could easily climb higher.”
  • Credit union loan growth is now expected to be only 2% this year and 3.5% in 2021 — both well below growth of 6.5% in 2019.
  • Loan quality will weaken. At the end of 2019, payments were only 60 days or more late on 0.70% of balances; this year delinquencies will spike to 1.25%. Charge-off rates, which were only 0.56% of average loans for the 12 months ending Dec. 31, will rise to 0.87% this year.
The economy will grow 3% in 2021, “with production and service-sector activity resuming, and pent up consumer demand driving growth,” the report said.
Van Rijn said in an interview that the economic team will be meeting and reporting more often because of the swiftly changing conditions.
Beyond common boilerplate caveats about uncertainty, CUNA economists stressed that conditions are truly fluid and predictions could change for the worse if any of their assumptions fall short.
“For example, ‘stay at home’ orders and social distancing could remain in place longer than the second quarter, and the coronavirus could dissipate during the warmer summer months only to return in the fall. Also, policymakers could make errors in fiscal and monetary policy, or in countering the pandemic,” the report said.
Despite this, credit unions will not see conditions as bad as they were during the Great Recession of 2007 to 2009. Loan delinquencies peaked at 1.82% and charge-offs at 1.20% in 2009. Loan portfolios fell 1.2% in 2010, the year after the recovery began.
“This is because credit and housing markets remain relatively healthy, credit unions are larger and more diversified today, mortgage lending is a bigger part of credit union loan portfolios, and the effects of the pandemic are expected to be relatively short-lived,” the report said.
Loans for cars and businesses will see the greatest impact, while low-interest rates will continue to feed refinance volume and home equity lines of credit.
Auto lending was already trending down. While cars account for about 30% of credit union loan balances, they have been responsible for about 40% of growth, mainly because of indirect lending. About 17 million new cars and light trucks were sold in 2019, but this year about 15% fewer will be sold.
While households are still reaching out to credit unions to refinance first mortgages and take out second mortgages, purchase mortgages will “take a hit, at least for a little while,” van Rijn said.

“It may be harder to go out and purchase a home with all of the social distancing,” he said. “In general, we expect credit unions will get creative so they can still do lending in these tough times.”
| April 06, 2020 at 01:43 PM

FYI, FAQs on PPP Ready to Read ASAP

ARLINGTON, Va.—In conjunction with the release by the Small Business Administration (SBA) of an interim final rule to implement the $349 billion Paycheck Protection Program, NAFCU has published a series of FAQs on the program and what it mean for credit unions.
Previous guidance from the Treasury Department indicated all federally-insured credit unions will be able to offer loans under the program, but those that are not currently SBA-approved lenders must submit an application to become one.
NAFCU's FAQ document answers 22 questions. Of note, while credit unions are not qualified to apply for a loan under the paycheck protection program, credit unions can receive economic injury disaster loans (EIDLs).
Among the issues discussed in the FAQs:
  • What paycheck protection loans can be used for
  • Terms of the loans
  • Who is eligible to apply
  • Who are eligible lenders, including how to apply to offer loans if not already an SBA-approved lender
  • Loan forgiveness
  • Ability to apply for other emergency coronavirus loans
  • Who can act as agents
  • Underwriting requirements
  • What documents lenders need to provide SBA for loan applications
  • How to determine a borrower's eligibility
  • Which documents lenders need to provide for loan forgiveness requests
  • If any fees are owed to SBA
Additional questions related to borrowers are also addressed in NAFCU's FAQs. The application period for small businesses opened Friday; independent contractors, self-employed individuals, and sole proprietors can begin applying April 10.

NAFCU is offering a free webinar today on PPP

ARLINGTON, Va.—NAFCU is offering a free webinar today to help credit unions better understand the process for offering loans through the Small Business Administration's new Paycheck Protection Program (PPP).
Just a day ahead of the launch of the program itself, the SBA last week released an interim final rule to implement the program. In response, NAFCU developed an FAQ document answering 22 questions credit unions are likely to face as they consider participating in the program (see related story).
Previous guidance from the Treasury Department indicated all federally-insured credit unions will be able to offer loans under the program, but those that are not currently SBA-approved lenders must submit an application to become one.
During today’s webinar, set to begin at 4 p.m. ET, credit unions will hear from Steve Meirink, executive vice president and general manager of compliance solutions in the Governance, Risk & Compliance division at Wolters Kluwer.
Meirink will provide guidance related to the Paycheck Protection Program, highlight the most pressing market needs, and explain the best ways credit unions can make the program work for members in need of small business loans during the coronavirus pandemic, NAFCU said.
While the webinar is free, registration is required.

Monday, April 6, 2020

Federal and State Agencies Encourage Mortgage Servicers to Work With Struggling Homeowners Affected by COVID-19

(April 6, 2020) — On Friday, April 3, the federal financial institution regulatory agencies and the state financial regulators issued a joint-policy statement providing needed regulatory flexibility to enable the mortgage servicers to work with struggling consumers affected by the Coronavirus Disease (referred to as COVID-19) emergency. The actions announced by the agencies inform servicers of the agencies’ flexible supervisory and enforcement approach during the COVID-19 emergency regarding certain communications to consumers required by the mortgage servicing rules. The policy statement and guidance issued today will facilitate mortgage servicers’ ability to place consumers in short-term payment forbearance programs such as the one required by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). 

Under the CARES Act, borrowers in a federally backed mortgage loan experiencing financial hardship due, directly or indirectly, to the COVID-19 emergency, may request forbearance by making a request to their mortgage servicer and affirming that they are experiencing financial hardship during the COVID–19 emergency. In response, servicers must provide a CARES Act forbearance that allows borrowers to defer their mortgage payments for up to 180-days and possibly longer. 

View the entire press release​

Banking During and After COVID-19

Before COVID-19, the banking industry was experiencing an unprecedented period of growth and prosperity. Despite increasing consumer expectations and increased competition from non-traditional financial institutions, most banks and credit unions were stronger than at any period since the financial crisis of 2008.
In a matter of only a few weeks, the world of banking has experienced a level of disruption that will change everything that had been the norm in financial services. There has not only been a major change in the way financial institutions conduct business but in the way, employees do their work and the way consumers manage their finances.
Banks and credit unions must use this time of disruption to consider reinventing themselves from the inside out. It is a time when we need to better understand the way consumers expect their financial institution to support their financial needs. This includes the way banks and credit unions use data, AI, technology and human resources to impact marketing, innovation and the digital delivery of products and services.
Some organizations may retrench and try to save costs because of the financial stress that results from the massive shutdowns caused by COVID-19. Other organizations will go beyond looking for efficiencies to create completely new business models that will impact all components of performance. Right now, there is an opportunity to reevaluate how technology, insight, and analytics can accelerate the future growth and competitiveness of financial institutions globally. To move forward will require a new perspective from most C-suites regarding priorities and deployment of resources.
To better understand the impact of COVID-19 on financial services, we interviewed three senior executives on the Banking Transformed podcast. Each executive discussed where banking was before the coronavirus crisis and the impact recent events will have on the future of marketing, innovation and digital delivery. Our guests for our “Banking Responds to COVID-19” series were:
A portion of each interview is provided below. The complete interview is available on The Financial Brand website or can be downloaded on your favorite podcast app.
Read More:
By Jim Marous, Co-Publisher of The Financial Brand, Owner/CEO of the Digital Banking Report and host of the Banking Transformed podcast.

New Vehicle Sales Slam on the Brakes

ARLINGTON, Va.—Total vehicle sales plummeted to 11.4-million units in March from February's rate of 16.7 million annualized units. Monthly sales levels were down 34.1% versus March 2019.
“The global effects of coronavirus on the auto market are here, including disrupted supply chains, idle factories, and closed showrooms resulting in the lowest monthly sales number since June 2010,” said NAFCU Chief Economist and Vice President of Research Curt Long. “As most shelter-in-place orders were instituted in March, April's numbers are likely to be even lower.
“NAFCU expects vehicle sales to continue to fall in Q2 as the effects of social distancing take hold, with some rebound in the latter part of Q3, though as with any virus-related forecasts, there is a high degree of uncertainty,” Long added.
Cars,  Trucks Back Down
Car and light trucks sales both fell dramatically during the month to 2.9 million annualized units and 8.5 million annualized units, respectively.
Light trucks continue to dominate share, although sales were down 30.9% versus March 2019, amid the crisis. Auto sales fared worse with a 42.1% declined compared to the same time in 2020, Long said.

Billions Loaned Out in Single Day, CUs Struggling to Get Clarity: First Full Week of PPP Begins Today

WASHINGTON–Credit unions and other financial institutions spent the weekend sorting through a chaotic first day on Friday of the Paycheck Protection Program and are expecting more of the same today. 
Over the weekend news, media reports and small business owners used words such as “chaos,” “confusion,” “plagued with problems” and “frustration” to describe the Paycheck Protection Program (PPP), which was hurriedly put together following the passage of the $2-trillion CARES Act. 
The program offers loans of up to $10 million to companies that employ fewer than 500 people. Those loans are forgiven as long as the businesses meet certain conditions, such as using the majority of the funds to pay worker salaries for the eight weeks following the loan closing. 
Several vendors have already announced PPP platforms, more information on which appears below.
As reported here, CUNA, NAFCU, the Defense CU Council and others were all pressing the SBA for additional guidance and clarity as last week came to a close, including changing one rule that is preventing credit unions from being recipients of funds to cover their own payroll costs. CUs can only participate as lenders if they are SBA certified. 
Varying Reports on Loan Volume
According to the Treasury Department, $4.3-billion in loans (1.1% of the $359 billion available) were made to businesses on Friday to cover their payrolls, even though three of the biggest banks in the country—Citi, JPMorgan Chase and Wells Fargo—initially said they weren’t taking applications until the federal government provides more guidance on the Small Business Administration (SBA) program.
However, late on Friday Bank of America tweeted it had processed $6-billion in applications on day one.
Read complete Story HERE

Friday, April 3, 2020

F&A Federal Credit Unions decisive actions in the face of the COVID-19 pandemic.

We were talking with one of our clients, F&A Federal Credit Union in Monterrey Park California, the other day and were struck by their early, decisive actions in the face of the COVID-19 pandemic. (F&A was chartered in 1936 to provide financial services to employees of the Los Angeles County Forestry, Fire and Agricultural Departments.) 
We soon learned that the decisiveness in responsive to the coronavirus situation was the result of a combination of a well-thought-out pandemic response plan and the courage to act when some might have argued that it was too early to do so. F&A FCU’s actions were made possible by a strong governance culture of trust between the credit union’s board and CEO Tim Green and his management team, all of which enabled Tim to make some tough, early calls. 
Tim told us that by late January he was concerned enough about the likelihood that the virus would impact the United States that he decided to implement the credit union’s pandemic response plan. 
As Melia Keller, VP/marketing notes, “Tim a visionary on this … the need to prepare for a quarantine. It was really hard to fathom. We ordered laptops and set them up to work remotely, came up with a communication plan, prepared for kids being at home, employees working remotely and identified people of higher risk and started them working from home right away.” And, the board was supportive of it all.
In February, F&A FCU developed and prepared call center scripts and emergency member communications, Melia told us, “We had a communication plan in place, with scripting for outbound messaging. It all emphasized caring for the member. That has really differentiated us. We approached everything from a perspective of compassion and humanity.”
Lastly, and perhaps most importantly, the credit union focused on ways to make things better for its members and its employees. It developed programs to meet the members’ needs, including loan deferment through enhanced skip a pay, the waiving of loan late fees, and a short-term 0% APR loan of $5,000 for any member impacted by COVID-19—regardless of credit score and knowing some loans may not be repaid. Employees are empowered to help where they can, and for one desperate member, this meant F&A FCU even provided a couple of rolls of toilet paper at the drive-through window.  
For employees, Tim initiated a short-term 30% raise and offered 40 additional hours of paid time off to use as needed. For employees working in the branches (one is drive-through only, the other has limited teller hours), the credit union caters lunch, so they don’t have to go out. They even gave each staff member two rolls of that precious toilet paper from the credit union’s supplies!
According to Tim, the goal was similar to the goal of its firefighter members: to make things better. “Everything was pre-planned, except the toilet paper and the decision on the 30% temporary pay adjustment,” he said.
Tim felt confident that he could make that command decision and that the board would support it—and indeed it has. Tim noted to us that COVID-19 “has crystalized our values without us having to talk about it. We are the ones who are there for you.” 
It struck us that the F&A FCU leadership—board and staff – were running “into the fire” of the COVID-19 pandemic, ready and able to help its members, just as its own firefighter members are ready, willing and able those in need. The CU’s preparation, shared dedication to service and, perhaps most importantly, culture of trust (even though Tim is a relatively new CEO) have been invaluable for F&A FCU members. 
by Caitlin Curran HatchSenior consultant
Caitlin Hatch serves as a senior consultant with CUES strategic provider Quantum Governance and has worked with credit unions for the past eight years, focusing on governance and strategic planning. Prior to that, she served for 25 years as general counsel and corporate secretary for the largest anthracite coal company in the United States.

Paycheck Protection Program More questions have emerged, including whether CUs can apply to receive funds.

WASHINGTON—Details continue to emerge related to the recently announced Paycheck Protection Program, although as reports, even more questions have emerged, including whether CUs can apply to receive funds. 
The most recent change is an announcement by the Treasury Department that it has doubled the interest rate to 1% from 0.5% on the emergency loan program. Treasury Secretary Steve Mnuchin said the last-minute change was made in response to concerns raised by smaller financial institutions, which had complained the 0.5% rate would create “unacceptable losses for lenders," according to the Wall Street Journal. Some financial institutions have said they will not be ready today to offer the program, but Mnuchin said it will become effective anyway. 
“You will get the money. You will get it the same day,” Mnuchin said during a press conference. “You use this to pay your workers. Please bring your workers back. This is a very important program.”
The program, part of the $2-trillion CARES Act, is to be administered by the Small Business Administration and is designed to help keep people employed by making loans to small businesses to cover payroll. A credit union must be an approved SBA lender to participate. 
The program will charge the 1% interest rate, and the loans will be forgiven as long as the companies keep their employees on their payrolls for two months.
Under the program, lenders would make available as much as $350 billion in government-guaranteed loans to cover eight weeks of payroll and other expenses.
How Program Works
Business owners can begin applying Friday, followed by independent contractors and people who self-employed on April 10, according to the SBA. The government says it will forgive the loans if they keep their workforce largely intact and use the loans for eligible expenses such as rent and utilities, the agency added.
“The Trump administration is anticipating that the nation’s vast network of federally insured banks, credit union, and farm credit system institutions will handle the loans, senior administration officials said Tuesday,” the Wall Street Journal reported. “Most of the applications are likely to be filed online, they said, and the money could be dispensed in as little as one day.”
According to the SBA, the loans will be due in two years, with payments deferred for six months. Interest accrues during the deferral period. The amount of loan forgiveness is reduced if the borrowers reduce their payrolls by more than 25% during the eight-week period covered by the loan, the Journal said.
“But questions remain unanswered about exactly how the program will work, lenders say,” the Journal noted. “Unknown is how quickly the system will be able to meet the expected high demand for the new loans.”
‘Skeptics’ Doubt Feasibility
Several “skeptics,” told the Wall Street Journal they have doubts over the SBA’s ability to handle the massive increase in interest, both from a technology and manpower perspective.
One small bank in Oklahoma reported it fielded 50 applications for the loans in just one hour.
“The administration officials said that the Payroll Protection loans will be far simpler to approve than conventional SBA loans and expects to qualify many other banks and other federally insured depository institutions,” the Journal said. “The form is only two pages long and essentially only requires the borrowers to estimate their average monthly payroll, number of jobs and other expenses. Borrowers are also required to pledge that the funds will be used to retain workers and other essential bills like mortgages and leases.”
Additional Details
The Journal report added the SBA won’t have to approve the loan, the officials said. Rather the agency would simply check to make sure that the borrower hasn’t already applied and received a loan by working through another bank.
There are approximately 30-million small businesses in the United States. 

Slim Credit Union Loan Growth in 2020

Credit unions will see their slowest loan growth since the Great Recession this year as the pandemic-induced recession batters car sales and keeps many members who have lost income sheltering in their current homes from venturing out to buy new ones, according to a CUNA Mutual Group report released Thursday.
The Madison, Wis., group’s monthly Credit Union Trends report covered data for January, which looks quaintly rosy. However, commentary by the group’s chief economist Steven Rick painted a darker picture of the toll the recession will take on members and their credit unions.
Rick predicted credit union loans will grow 3% this year, as the economy goes from a 5% annualized drop in the real gross domestic product in the first quarter to a 20% plunge in the current second quarter, followed by a 10% gain for the second half.
Mortgage lending will remain strong, primarily due to the historically low rates keeping the refinancing surge alive, and more homeowners tapping equity to meet cash needs. Home prices and purchases, however, will drop when they meet the reality of unemployment rates that Rick said he expects to hit 6.5% this year and fall to 5% in 2021.
That projection preceded Thursday morning’s report from the U.S. Commerce Department that Americans filed 6.6 million first-time unemployment claims last week, up from the record 3.3 million filed in the previous week.
CUNA economist Jordan van Rijn said Thursday the new claims imply the rate will peak somewhere in the 8% to 12% range this year, which means it could surpass the peak jobless rate of 10% in October 2009, four months after the official end of the Great Recession.
Curt Long, the chief economist for NAFCU, said the combined 10 million claims are the equivalent of more than 6% of the nation’s labor force.
“It will be critical to provide assistance not only to those workers but to their employers, in order to ensure strong labor demand once the worst of the health crisis is past,” Long said.
Even before the additional 6.6 million claims were reported, Rick said the jobless rate will take a heavy toll among members, and choke off borrowing for both cars and, eventually, homes.
While the federal government will be providing $500 billion in economic stimulus through relief checks of $1,200 per adult, credit unions will see their savings rise 14% this year “as some credit union members will not immediately spend the relief money.”
Fewer will be buying new cars. Last year dealers sold 17 million new cars and light trucks; this year Rick predicted they’ll sell 10 million. “The current economic crisis will ensure that this summer will be the weakest in new-auto lending for credit unions in history,” he said.
“Expect home prices to fall in 2020 as the unemployment rate surges to over 6% this summer, from the 3.6% unemployment rate in February,” he said. “Housing demand will dry up due to the uncertainty gripping the nation. Home foreclosures will also surge as many Americans who lose their job in the next few weeks will not find employment in the future.”
Rick said his forecast of 10% GDP growth in the third and fourth quarters assumes the virus peaks by July.
“As economic activity resumes during the second half of 2020, we expect unemployment to fall slightly but remain elevated at 6% before falling further to 5% in 2021 as the recovery extends throughout the economy.”
He forecasted credit union loan balances rising 5% in 2021, 7% in 2022 and 8% in 2023.
| April 02, 2020 at 05:16 PM

Thursday, April 2, 2020

NCUA: Urgent Needs Grants Available to Help Credit Unions Affected by COVID-19

ALEXANDRIA, Va. (March 23, 2020) – Federally insured, low-income designated credit unions that experience unexpected costs as a result of COVID-19 can request urgent needs grants(opens new window) from the National Credit Union Administration.

“The NCUA recognizes that the COVID-19 outbreak will affect all federally insured credit unions and their members to varying degrees,” NCUA Chairman Rodney E. Hood said. “If you are a low-income credit union that needs assistance during this difficult time, I encourage you to apply for these grants to ensure you can continue to meet the financial needs of your members and communities.”

The NCUA’s Office of Credit Union Resources and Expansion can provide grants up to $7,500 to low-income credit unions for:
Hardware, software, or other equipment to help them provide financial products and services from remote locations;
Consulting services to develop programs and partnerships to assist those affected by COVID-19, such as small businesses or schools; and
Developing marketing materials to assure members their insured deposits are safe.

Eligible credit unions also may apply for loans supported by the Community Development Revolving Loan Fund.

Eligible credit unions may apply for grants or loans through the NCUA’s CyberGrants portal(opens new window).

Credit unions with questions should contact the Office of Credit Union Resources and Expansion by email at

NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. At new window), NCUA also educates the public on consumer protection and financial literacy issues.

"Protecting credit unions and the consumers who own them through effective regulation"
Rodney E. Hood

Treasury/SBA issue information on $349B available for business lending

The coronavirus disease (COVID-19) relief legislation signed into law last week recognizes credit unions as part of several vital economic recovery programs, notably the $349 billion Paycheck Protection Program (PPP). Through the program, the Small Business Administration (SBA) will make available funds for small businesses to secure up to eight weeks of payroll costs including benefits, as well as to pay interest on mortgages, rent and utilities.
CUNA continues to engage with the SBA and Treasury on strong specific guidance on the PPP.
“Treasury and the Small Business Administration expect to have this program up and running by April 3rd so that businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day,” said Treasury Secretary Steven Mnuchin. “The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”
All existing SBA-certified lenders will be given delegated authority to speedily process PPP loans. All federally insured depository institutions are eligible to participate, and according to the Treasury, “a broad set of additional lenders can begin making loans as soon as they are approved and enrolled in the program.
New lenders will need to submit their application to to apply with the SBA.
Starting April 3, small businesses and sole proprietorships can apply. Funds are provided in the form of loans that will be fully forgiven when used for payroll costs, interest on mortgages, rent, and utilities, and due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll.
Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease, according to the Treasury.
The Treasury has also created a one-page list of information for lenders, answering questions such as:
  • Who is eligible to lend?
  • Are the loan guaranteed by SBA?
  • Are there guarantee fees?
  • What underwriting is required?
  • How will lenders be compensated?
  • Who can be an agent?
  • How will agents be compensated?
  • Can these loans be sold on the secondary market?
The Treasury has also issued information for borrowers, as well as the application for borrowers.
CUNA staff attorneys, outside counsel and NCUA staff have analyzed credit unions’ eligibility as PPP borrowers, and agree that credit unions and other businesses “primarily engaged in the business of lending” are not eligible PPP borrowers. CUNA has joined other cooperatives in asking the SBA to allow cooperatives to participate in the program.
CUNA is working with SBA and NCUA to see if the SBA is willing to explore rule changes to make credit unions eligible for PPP through a change in SBA rules, as many credit unions could use access to these funds to provide economic relief and offset costs related to the pandemic.