Editor’s Note: This column was written in response to a challenge by CUToday.info’s Frank J. Diekmann that members of Filene’s i3 group and other CU organizations lead the charge and help reverse the three year decline by credit unions, which have fallen bedhind banks in the annual American Customer Satisfaction Index.

By Shanda R. Reaves




Credit unions pride themselves on a high level of service, satisfaction, and face-to-face interactions. But has the idea been considered that as a whole, members may no longer equate good service to face-to-face interactions as much as credit unions think they do?

Recent surveys from the American Consumer Satisfaction Index have shown that credit unions are falling behind in member satisfaction. This is not because credit unions are lacking in the quality of service, but because the needs and expectations of members have shifted. Due to the pandemic, members value their time doing more meaningful things and, thanks to Amazon, members expect more variety and a quick turnaround time.

In order for credit unions to be sustainable there must be a shift in the mindset of credit union leaders. Credit union leaders must be proactive at looking at trends and investing money into solutions that will create longevity. Credit unions should passionately seek the best new innovative opportunities, even if they are non-traditional and execute these initiatives with enormous discipline. This is easier said than done, because face-to-face interactions and community is the bedrock of what credit unions are based on.

The Answer is Attainable

Nevertheless, the answer appears to be attainable.

Credit unions should consider: Continue Reading

VyStar Credit Union Qualifies for CDFI Certification Following Partnership With CU Strategic Planning

JACKSONVILLE, Fla.–The $13-billion VyStar Credit Union has obtained Community Development Financial Institution (CDFI) certification and also qualified for grants from the U.S. Treasury Department.

The credit union worked with CU Strategic Planning, which is the largest organization in the CU community for obtaining CDFI certification, as it works to expand its service in underserved and vulnerable markets.

“Earning the right to be called a Community Development Financial Institution is central to the values VyStar stands for as an organization,” Chief Lending Officer Jenny Vipperman stated. “We believe in the importance of reflecting the communities we serve, and that means meeting individuals where they are and helping improve their financial wellness with fairness, compassion and integrity. That’s why we employ a diverse, talented staff and remain committed to making our high-quality products and services available to people of all different backgrounds. It is why we also support a broad range of community partners who share in our commitment to positively impact the world around us.”

Tacoma, Wash.-based CU Strategic Planning noted CDFI-certified lenders are eligible for CDFI Fund grants, which support generating economic growth and opportunity in some of the nation's most distressed communities.

“Credit unions serve more rural, low-income and minority areas than other financial institutions, and it remains critical that we offer inclusive services that improve the financial lives of individuals from various geographic locations and backgrounds,” said Vipperman. “We want to be a trailblazer in our industry and remove the limitations that may be holding back other credit unions. Our successes in this area encourage other credit unions to make decisions with confidence and in turn serve more underserved members.”

Serving Their Intended Purpose

Added CU Strategic Planning AVP of Certification Services Carrie Ostrem, “VyStar truly demonstrates that credit unions continue serving their intended purpose—providing affordable financial services for people of all backgrounds, especially those who are most financially and socioeconomically disenfranchised. Our work makes it easy to show up every day and unlock opportunities for credit unions and their communities. Congratulations, VyStar!”

 

Mortgage payments are already less affordable relative to income than at any time since 2008

WASHINGTON­–While still low by traditional standards, mortgage rates have now risen for three straight weeks.

The rate increases are partly in response to expectations the Federal Reserve will raise interest rates at least three times during 2021, as rates are closely tied to the 10-year Treasury.

As of Jan. 13, the average rate on a 30-year, fixed-rate mortgage was 3.871%, while it was 3.592% on a 30-year fixed FHA mortgage and 3.632% on a 30-year fixed VA loan.

A year ago, the average rate on the 30-year was 2.79%, just above its record low of 2.65%.

Meanwhile, the higher borrowing costs combined with record-high home prices could push some would-be buyers out of the market. According to the National Association of Realtors, the median price for existing homes rose 13.9% in November from a year earlier to $353,900.

“Given the fast pace of home price growth, [higher rates] will likely dampen demand in the near future,” Sam Khater, chief economist at Freddie Mac, said in a statement.

In addition, the Federal Reserve Bank of Atlanta said mortgage payments are already less affordable relative to income than at any time since 2008. Early 2021, Americans needed about 29% of their income to cover a mortgage payment on a median-priced home, the Atlanta Fed estimated. That rose to 33% by October.

Another Half-Dozen CU Mergers Proposed; Lack of Succession Planning Often Cited as 1 Problem

UPPER DARBY, Penn.–A half-dozen more credit union mergers have been proposed, with nearly all involving smaller CUs and several citing a lack of succession planning as one big problem, according to forms filed with NCUA.




In Upper Darby, Penn., the $15.1-million Delco Postal Credit Union which has approximately 1,312 members, is seeking to merge into the $41.4-million Forge FCU, which has approximately 3,300 members.

In its disclosure statement filed with NCUA, Delco Postal said, “the board of directors has concluded that the proposed merger is desirable and in the best interests of members because of the expanded products and services, the location with expanded membership hours and the dedication of the continuing credit union to serving a SEG-based membership.”

Delco Postal reported $148,339 in net income on its Sept. 30, 2021 call report, with net worth of 11.46%. Forge FCU reported net income of $909,464 and net worth of 21.15% on the same date.

Delco Postal said it does not plan to pay out any of its capital to its members, but two of its employees will receive merger-related compensation, including: MSR Thomas Miller, with a maximum severance of Continue Reading

"The auto market is having a difficult time breaking out of its malaise.

ARLINGTON, Va.—Total vehicle sales declined to 12.4 million units from 12.9 million annualized units in December, with monthly sales levels down 24% year over year.





Curt Long, NAFCU

"The auto market is having a difficult time breaking out of its malaise, and sales in December declined slightly from already low levels," said NAFCU Chief Economist and Vice President of Research Curt Long. "High gas prices and low inventories are each taking a toll.

"On the supply front, KPMG says it could take until October 2023 for vehicle supply to meet projected demand," Long added. "According to Moody's, the decline in unit sales did not prevent automobile lending from achieving new highs."

Car sales were flat last month, holding at 2.6 million annualized units, while light truck sales fell from 10.3 million annualized units to 9.8 million.

Domestic Production is Down

Domestic production in November was down 41% from the same month in 2019. The inventory-to-sales ratio, already at the lowest level on record, sank again in November to a new low.

"Unfortunately, the near-term outlook for auto sales is not positive, as supply chain issues will continue to hurt sales and an approaching rate hike from the Fed may also dampen demand,” concluded Long.

Mortgage rates in the U.S. hit their highest levels since May 2020

WASHINGTON–Mortgage rates in the U.S. hit their highest levels since May 2020, helping to drive up the costs of buying a home at the same time home prices are already near record highs.

According to Freddie Mac, the average rate for a 30-year fixed-rate loan was 3.22%, up from 3.11% one week earlier. One year earlier mortgage rates stood at 2.65%.




Meanwhile, the median existing-home price rose 13.9% in November from a year earlier to $353,900, according to the National Association of Realtors. The November figure for the median sales price for newly built homes also reflected an all-time high.

“Rates are really the biggest risk to the market,” Ivy Zelman, chief executive of real-estate research and advisory firm Zelman & Associates, told the Wall Street Journal.

The Difference in Payments

The Journal noted data provided by LendingTree show a 3.22% rate on a $300,000 loan would create a monthly payment of about $1,300. At 2.65%, where the average mortgage rate stood a year ago, the monthly payment would be $1,209. (Both figures exclude taxes and insurance).

“I think that a 4% mortgage rate would kill the housing market,” Zelman was quoted as saying. “So many people are locked in below that rate, and that’s really what matters.”

The National Association of Realtors is forecasting the 30-year fixed mortgage rate to hit 3.7% at the end of 2022, a “borrowing rate that the industry group’s economists believe is still low enough to keep the housing boom going,” the Journal added.

Treasury Yields Rise

The report further noted mortgage rates in recent days have followed the steep climb in U.S. Treasury yields, which set a floor on borrowing costs across the economy. The yield on the benchmark 10-year U.S. Treasury note settled Thursday at 1.733%, according to Tradeweb, up from 1.496% last Friday, the Journal reported.

“Yields started rising sharply on Monday, a sign that investors were making fresh bets on Federal Reserve rate increases, reflecting expectations that the U.S. economy will continue expanding and that officials will move to bring inflation down,” the Journal stated. “Yields got an extra boost Wednesday, when minutes from the Fed’s December meeting showed officials were eyeing a faster timetable for raising rates this year.”

As CUToday.info reported earlier, Americans borrowed a record $1.61 trillion to purchase homes during 2021, according to the Mortgage Bankers Association.

Statement for Federal Reserve Chairman Jerome Powell

WASHINGTON–Federal Reserve Chairman Jerome Powell has sent the clearest signal yet that rates will be on the rise this year, while also defending himself before Congress over how the Fed missed the mark so badly on inflation.





Federal Reserve Chairman Jay Powell.

Testifying before the Senate Banking Committee as he seeks confirmation for a second term as chair, Powell emphasized that controlling inflation, which is best accomplished by raising interest rates, will be a focus as the Fed seeks to set the stage for a sustained expansion of the economy.

“If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, we will,” Powell said. “We will use our tools to get inflation back.”

He acknowledged the Fed’s earlier forecasts underplayed inflation.

“We and other forecasters, we believed based on our analysis and discussions with people in industry that the supply side issues would be alleviated more quickly than now appears to be the case,” Powell said. “Substantially more quickly.”

He said the Fed had expected a “much more significant return to the workforce than what has actually taken place.

“While that is not what is causing current inflation,” Powell said, “labor supply can be an issue going forward for inflation, probably more than the supply side issues.”

Second Mandate

Powell said the Federal Reserve will also continue to focus on its second mandate, which is to support full employment, so it must balance rate increases against overly cooling the economy to the point it hurts jobs and hiring.

“High inflation is a severe threat to the achievement of maximum employment,” Powell told the Senate.

Powell and other members of the Fed have backed away from their earlier statements that inflation is “transitory” and will pass, and he acknowledged rising prices have lasted longer than many had expected.

If rapid price gains start to become “entrenched in our economy,” the Fed might have to react starkly to choke off runaway inflation and risk touching off a recession, Powell said. To avoid a painful policy response and to instead set the stage for a strong future labor market, it is important to control inflation, he indicated.

‘Humble and Nimble’

Prior to testifying, Powell had already indicated the Fed plans to cut back on the amount of federal debt it has been buying and to taper its balance sheet holdings, which is also designed to push rates higher.

“The committee hasn’t made any decisions about the timing of any of that — I think we’re going to have to be both humble and a bit nimble,” Powell said, adding that while all members of the Fed’s policy-setting committee expect to raise interest rates this year, how many increases the central bank actually makes will depend on how the economy evolves at an uncertain moment.

As CUToday.info has reported, most analysts are predicting the Fed will move three times in 2022—in quarter-point increments—to raise rates, but Goldman Sachs’ economists have recently said they expect four such increases.

How fast the Fed will act could be affected by the release today of an inflation report by the federal government.

Some Concerns Expressed

Senate Republicans, including Sen. Patrick J. Toomey of Pennsylvania, expressed concerns the Fed might have moved too slowly to counteract price gains thanks in part to a new, employment-focused policy approach that Powell has overseen, noted the New York Times.

“I worry that the Fed’s new monetary policy framework has caused it to be behind the curve,” Toomey said, before praising the Fed for adjusting its stance as conditions have evolved and inflation has not dissipated as quickly as many had expected.

Powell’s statement to the committee can be found here.

Bank of England Warns Bitcoin Could be ‘Worthless’

LONDON—Will 2022 see the surging interest and appreciation in digital currencies as was seen during 2021? Perhaps, but the Bank of England also has a warning, cautioning consumers that Bitcoin could be “worthless” and people investing in the digital currency should be prepared to lose everything.

In a warning over the potential risks for investors, the central bank questioned whether there was any inherent worth in the most prominent digital currency, which has soared in value this year to close to $50,000, The Guardian reported.

The cryptocurrency peaked above $67,000 in early November, but suffered a sell-off after news first broke of the Omicron variant of coronavirus, before stabilizing around its current level.

The deputy governor, Sir Jon Cunliffe, said the Bank had to be ready for risks linked to the rise of the crypto asset following rapid growth in its popularity.

“Their price can vary quite considerably and [Bitcoins] could theoretically or practically drop to zero,” he told the BBC.

More evidence that a March rate hike is appropriate.”

Darwit Kebede

WASHINGTON — The U.S. economy added 199,000 jobs in December, according to new data from the Labor Department. While that was the fewest jobs added in any month of 2021, one credit union economist sees signs a “strong recovery” continues.

The 199,000 new jobs came in well below what many economists had forecast, with most expecting it would be double that number.

Nevertheless, despite the weaker than anticipated numbers, 2021 will still go down as a year of record-breaking jobs growth, with the country adding 6.4 million jobs during the year, the most since records started in 1939.
 

The unemployment rate fell to 3.9% in December, marking a new pandemic-era low.

“The labor market added fewer jobs than expected in December,” said CUNA Senior Economist Dawit Kebede. “However, the unemployment rate continued to decline, falling below 4%, which indicates a strong recovery. Overall, the economy added on average 537,000 jobs per month in 2021.
“The employment data was collected before the Omicron variant blanketed the nation, turning entire areas into hot spots for community spread. Hence, the variant -- although less severe than Delta -- could temporarily derail progress in subsequent months.
“A 3.9% unemployment rate is good news for the Federal Reserve who is on track to end its stimulus by March in order to fight inflation,” Kebede added.

Added NAFCU Chief Economist and VP Curt Long, “The December jobs report was another mixed bag, as the establishment survey showed a disappointing gain of just 199,000 jobs, but the household survey showed another large decline in the unemployment rate. Even though the establishment survey failed to hit expectations for headline job growth, it still indicated a strong advance in hourly wages. Given the FOMC’s latest hawkish turn, the committee is likely to receive this report as more evidence that a March rate hike is appropriate.” 

CUToday

Is ‘Buy Now, Pay Later’ the Future of Consumer Lending?

Major specialists like Klarna, Afterpay and Affirm, as well as payments giant PayPal, are raking in big bucks financing consumer purchases. They are playing a different game than many banks and credit unions. But amid this tectonic shift there may be opportunity for traditional institutions — in part by picking up the pieces.

That buy now, pay later purchasing is booming is indisputable. It’s a story that’s been building up over the course of the last several years. Predictions that it would surge to new heights during the 2021 holiday shopping season were supported when PayPal CEO Dan Schulman, appearing on CNBC, crowed that on Black Friday, “our volume on buy now, pay later was up almost 400% year over year.”

Schulman added that his company’s “Pay in Four” installment plans proved to be “one of the stars, actually, of the holiday season for us.”

Contrast that euphoria with comments by Scott Galloway, NYU Stern marketing professor. In a blog post written a few days after the national shopping binge, ironically titled “Red Friday, “he points out something that often seems forgotten by consumers who tap this service: “Buy Now Pay Later" is (wait for it) credit.”

An outspoken BNPL skeptic, Galloway adds: “The stale product formerly known as a loan has been rebranded as ‘Buy Now Pay Later’ … The premise is simple: Buy a product for a fraction of its cost at checkout and pay the rest of it off over a few weeks or months. The good news: Debt is not as bad as cancer. Though it can trigger depression or even revolution. But that’s another post.”

BNPL is often promoted as a friendlier way to spend without racking up credit card debt, with a key feature of most plans offered by fintechs being no interest rate, with merchants paying the lenders a fee instead. BNPL websites take a page from credit card promotions, showing photos of happy consumers happily, well, consuming.

Not everyone buys the BNPL message, especially when missteps can be costly in terms of fees. In congressional testimony, Marisable Torres, Director of California Policy at the Center for Responsible Lending, stated that: “We are wearied by the now-familiar claim, particularly among many occupying the ‘fintech’ space, that extending credit, without any accompanying requirement that it be affordable, promotes financial inclusion. Unaffordable credit may provide a quick inflow of cash, but it exacerbates financial exclusion over the longer term which, in the case of BNPL, can be just a few weeks or months down the road.” Continue Reading