Claiming it is being made a scapegoat, a Hollywood, Calif. credit union, the $83 million Musicians’ Interguild, is wrangling with regulators this week over how to treat modifications on real estate loans written as interest-only and now deemed delinquent on Call Reports.
Marc Jacoby, CEO and treasurer, complained his CU is being “seemingly singled out as an example of what awaits credit unions who write modifications that don’t conform to the FDIC model that has been tacitly endorsed as gospel by the regulators.”
Jacoby explained that his 7,500-member wrote a number of real estate loan modifications for terms of three to five years with a “motivation to keep members in their homes until the economy improved.”
The position of the regulators, however, “is indicated in our LUA/DOR that these loans were considered ‘delinquent’ and should be reported” in the quarterly Call Reports.
“It was made clear that interest-only modifications are completely unacceptable,” said Jacoby noting that “100% of these loans have been performing – making contractual payments per the modification agreement – and all have done so in excess of the regulatory six-month reporting period.”
Jacoby, whose CU serves TV and film guild employees, professional musicians and Hollywood residents, argued that the NCUA “under the guise of ‘safety and soundness’ has chosen to use us as an example of what will happen to credit unions that choose the interest-only option for modifications.”
“As a result of an onerous and arbitrary ruling our credit union is now compelled to report unheard of levels of delinquency” at 17%. Such a stance serves only “to get the attention of vendors and service providers who look at the Call Reports.”
“Furthermore,” Jacoby went on, “although pressed for documentary support of the ruling, NCUA was unwilling and unable to provide a written guideline or ruling that would justify their decision. As CEO my head is not in the sand,”
He said Musicians’ Interguild, like other CUs in California, faces “serious economic issues that must be addressed.” But, Jacoby added, “the important concept” is his CU should not be singled out and made “the dunce.”
Both the NCUA and the California Department of Financial Institutions declined comment on Jacoby’s complaints.
“We do not comment on individual credit union exams,” said a spokesman in Washington, D.C.
Similarly, the CDFI “does not comment on examinations for active credit unions,” said a spokeswoman there.