Thursday, February 26, 2009

Mortgage Cramdown Legislation

Congress is currently considering legislation ( HR 1106) that would allow bankruptcy judges to lower the principal balance owed on a mortgage loan, a practice referred to as a "cramdown". Judges would also be able to reduce mortgage interest rates or lengthen the term of the original mortgage. The idea behind this cramdown legislation is to help consumers whose home value has dropped below the balance owed on the mortgage. Keep in mind that the financial institution would not have been responsible for the decline in home value. Does this seem fair? Who would pay for the balance amount that was written off in the "cramdown"? Initially the financial institution would charge off or expense the balance. To cover the risk and cost of this type of potential event, financial institutions will raise mortgage rates and also increase the required down payment amount on new mortgages. The true cost of the mortgage cramdown would be passed along to those who pay their mortgages. This would tighten up a mortgage loan market that is already hurting for available lenders. The cramdown legislation also makes no provision for the fact that a property can APPRECIATE in value in the future.

The original mortgage contract should be honored. The credit union stands ready to assist members with loan modifications in cases of job losses, excessive medical expenses, divorce situations, and other reasonable events that affect a person's ability to repay. In all cases though, the principal balance would need to be paid as part of the plan.

The mortgage cramdown legislation is bad for the majority of consumers who pay their debts. North Alabama Educators Credit Union has never engaged in sub-prime mortgage loans or any other predatory type of loan. We have not had a single foreclosure since this "mortgage crisis" has begun. If we did have a mortgage bankruptcy in the future though , the other members of the credit union should not be responsible for paying the "cramdown" balance of one member.

Wednesday, February 18, 2009

Corporate Credit Unions and the NCUA

Below is the text of an article by Steven Syre of the Boston Globe. Other media articles have surfaced that report similar information. One important note to make is that the NCUA proposal is not final and other alternatives are being reviewed. Either way, credit unions are trying to solve this problem without the need for taxpayer funds or a "bailout". Credit unions are well capitalized and have the financial resources to replenish our NCUA insurance fund. The current reserve accounts of North Alabama Educators Credit Union exceed $5.5 million. All deposits at North Alabama Educators Credit Union are federally insured to $250,000 by the NCUA. Certainly this situation is not fair to North Alabama Educators Credit Union and the thousands of other natural person credit unions who did not do anything wrong. This is why the credit union industry is seeking alternatives to being billed by the NCUA for our "fair share". Here is the article;

"Credit unions are the dull populists of the financial industry, serving millions of individual members with plain-vanilla products. They're not leveraged to the eyeballs, and they don't take many risks.

That sounds like an ideal conservative profile for any institution trying to weather this financial crisis. So why are credit unions suddenly on the hook for an investment meltdown that could easily cost the entire industry the kind of money it earns in a whole year or even more?
The answer isn't about mistakes made by credit unions. Those small institutions are paying a price for decisions made somewhere else by someone else, calls that seemed reasonable at the time but worked out very badly. It's one more new spin on the familiar story about broken credit markets and the damage that trickles down to hurt people far from Wall Street.
Credit unions are facing special charges to help bail out one large institution that serves their industry and bolster two dozen more like it. The main culprit: The sinking values of mortgage-backed securities.
Compared with the trillion-dollar rescue packages under negotiation in Washington, the new problems facing credit unions look like a rounding error. And the vast majority of credit unions, which tend to maintain high capital cushions, will be able to eat the cost and move on if they must.
But it still hurts, and there are real consequences. "The plan, in my opinion, will impede the industry's ability to lend," says Michael Hanson, president of the Massachusetts Share Insurance Corp., which insures state credit union deposits that exceed federal limits. "Losses do that, just as a matter of economics."
Others agree. That includes the National Credit Union Association, the entity that insures credit union deposits up to $250,000, just as the Federal Deposit Insurance Corp. protects bank deposits.
Some credit union executives are mad over the bills they will end up paying. The Navy Federal Credit Union, the nation's largest, calls the coming expenses "unacceptable."
Other credit union chiefs I talked to this week sounded more resigned. Mike Lussier of Webster First Federal Credit Union, Debbie Guiney of Allcom Credit Union in Worcester, and Roy Campana of Industrial Credit Union in Boston all fit that description. "It's unfortunate because the capital is there for a rainy day," says Campana. "But it's raining."
It certainly is, but the story of how credit unions got so wet takes a little explaining.
Most people are familiar with the 8,000 credit unions serving members across America. But there are also 28 institutions known as corporate credit unions, which serve the other 8,000 with back-shop products and financial services. They are the credit unions to the credit unions. One particular corporate credit union, US Central, sits at the center of that system and provides investment services.
US Central has big problems. Private-label mortgage-backed securities accounted for more than half its $31 billion investment portfolio and their values were sinking like rocks despite high credit ratings late last year. Worse, member credit unions were taking some of their money out of US Central and the other corporates.
Other sources of cash, particularly the Federal Reserve and the Federal Home Loan Bank system, were reluctant to extend credit because they feared the possible risk of insolvency, according to John McKechnie, director of public affairs at NCUA, the insurer of credit union deposits.
US Central could sell some of its securities to meet demands for cash, but it would take huge losses on the securities no one wanted to own any longer. A corporate credit union collapse was possible.
The solution: The NCUA injected $1 billion of cash into US Central in the form of a note late last month and extended broader deposit insurance to all the corporate credit unions. The total cost, expected to be more than $3 billion, remains an estimate.
All credit unions insured by the NCUA will share the tab, which will amount to about 0.56 percent of their assets. That seems like a small number, but the industry only makes a profit equal to about 0.49 percent of assets a year.
The cost could go up, too. Those mortgage-backed securities have lost a lot of value, but they could lose more.
Recklessness by financial giants caused most of our problems. Your local credit union is paying a price just the same."
Steven Syre is a Globe columnist. He can be reached at

Wednesday, February 11, 2009

Large National Data Breach

Heartland Payment Systems recently disclosed that intruders had hacked into the computers it uses to process 100 million card transactions per month for 175,000 merchants. Heartland processes card payments for restaurants, retailers, and other merchants throughout the country.

Tech security experts said that the data breach could set a record, larger than the 94 million customer records lost to hackers by retailer TJX in 2007.

North Alabama Educators Credit Union has received notice from VISA International that a considerable number of our VISA Debit Card members were included in this national data breach. Replacement VISA Debit Cards are being ordered and all impacted members will be receiving mail correspondence and a new VISA Debit Card. Members will have the ability to change their new PIN's upon receipt and activation of the new card.

These type of data breaches are unfortunate because they generate considerable expense to the credit union. The time required to generate the compromise letters and card orders is also very time consuming. It is also inconvenient for the impacted credit union member.

Please keep in mind that North Alabama Educators Credit Union played no role in the data breach, but yet we bear the time and expense in replacing the VISA Debit Cards. Legislation is needed to hold organizations responsible for the time and expense associated with these data breaches. The credit union industry has been trying to bring forth data breach legislation that would automatically hold businesses responsible for losses of personal data.

A national class-action lawsuit is pending against Heartland Payment Systems as a result of this data breach. You can rest assured that North Alabama Educators Credit Union will join that legal effort to recover damages attributed to this data loss.

Members who have been impacted by this national data breach, or others in the past, are encouraged to contact your state and federal legislators and ask for data breach legislation to hold companies accountable for loss of YOUR personal information.

Monday, February 2, 2009

Fake Text Messages

Citizens all over the Southern states have reported receiving fraudulent text messages stating that their debit card has been deactivated. The purpose of these text messages is to fool the recipient into calling the 1-800 number provided to "reactivate" the account.

The text messages state that the caller is from the National Credit Union Administration, Credit Union National Association, or some other national group that sounds official. These calls are sent out in mass numbers hoping to trigger a few people into providing their personal information. If personal information is provided, rest assured that fraudulent transactions will appear on your account at some point.

When in doubt, contact the credit union at one of our published telephone numbers. North Alabama Educators Credit Union does not send out text messages to members. We also do not contact members and ask for personal information in regards to any suspected fraud. If we do suspect fraud on your account, we will be providing information to the member.

Unfortunately, technology has assisted criminals in a wide variety of methods to contact their potential victims. Never provide any information to an unsolicited request. Do not trust Caller ID as a means of verification either since call numbers can be spoofed to appear as a legitimate business number when it is not.