Conservatism in Defense of Reputation Is No Virtue
Credit unions, generally speaking, tend to be fairly conservative in most everything they do. The reasons for this are multifold. They have a fiduciary duty to the members who build the capital in the organization so it can function and continue operating for years to come; they aren't looking to make a quick buck for shareholders. Credit unions can also focus on bettering the financial lives of their members because they are nonprofits.
Being conservative is not always best, but it has helped credit unions maintain the integrity and dignity of the industrywide brand. Those that have strayed too far from their roots or put all their eggs in one basket to chase the almighty dollar, like Norlarco Credit Union and Cal State 9 Credit Union, have been harshly hammered by reality. The Centrix fiasco is another prime--no pun intended--example of credit unions having their eyes on the prize rather than solid due diligence and being sent through the ringer.
According to Callahan & Associates, credit unions experienced a 53% jump in first mortgage originations and the fastest share growth in four years in the first quarter of 2008. This is specifically due to credit unions' long-term vision and not only focusing on their financials today but where they want to be two, five and ten years down the road. Evidence of that is in federally insured credit unions' aggregate 0.60% return on assets, according to NCUA, a figure unheard of before the agency's famous and much-hailed ROA letter.
The enormous increase in the mortgage and deposit figures also indicates the oft-predicted flight to safety to the tried and true credit unions. For one, because most credit unions didn't get too caught up in the subprime debacle and are still able to make mortgage loans while other lenders are tightening their belts, if not closing up shop. And, second, members know as they lose money on their riskier investments or add their tax returns and rebate checks to their savings, their credit union is the place to go. Classic tortoise and the hare.
There are situations though where credit unions' cautious nature may not be of the best service to their members or their own reputation for integrity. Take for example the anti-payday loan initiative occurring in Arizona (see our article on page 6). Having been the Washington, D.C., reporter for several years, I have some understanding of the political nature of these dealings--a particularly credit union-friendly lawmaker, or at least one in a high position, may be opposed to it. Credit unions may want something from them during the next legislative session, so they are careful not to tread a path that goes against what the lawmaker supports or doesn't support. Or a contract lobbyist is playing both sides.
If credit unions are truly serving their members' best interests, it seems that opposing payday lending in its traditional sense deserves both barrels from the credit union lobby. Yet, in Arizona, the league has chosen to push financial education rather than joining the public referendum. The obvious question here is why the two cannot work in tandem.
Another question of principle arises from credit unions that use Fidelity National Information Services, which purchased the audit firm Watterson Prime. Those CUs must face what they will do when a decision comes in regarding the allegations that mortgages were approved for securitization over an underwriter's rejection based on outrageous income claims and low credit scores (see our article on page 3). FIS' told Credit Union Times in its own defense that it was Watterson Prime's job to match the investments with the clients' specifications and not to judge those specifications. FIS also said that the firm was paid a set amount per loan reviewed so there was no incentive to OK bad loans.
Some credit unions try to keep everything in-house or at least within the credit union community in an attempt to avoid such situations. If a decision comes down in favor of the whistleblower, it will be interesting to see if any of the thousands of credit unions that use FIS jump ship. In FIS' defense, it really wasn't under their watch to begin with.
Through the S&L crisis of the 1980s and the banking crisis of the 1990s and even going back to the Great Depression, credit unions have always been there serving their members. This is what has gotten them where they are and will keep them where they want to be.
Their reputation for integrity and honesty and serving the little guy is the bedrock of the credit union success story and must remain so.
As such, Credit Union Times is proud to be the industry's leading publication. We strive every week to earn that privilege with solid respect both for the industry and journalistic ethics. The editorial staff here, too, works to build upon our reputation with integrity and dignity.
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