The trades last week came out against principal forgiveness, an idea floated by Federal Housing Finance Agency Director Edward DeMarco. Political observers, however, noted that he has long been opposed to debt forgiveness and may be simply responding to consistent pressure from the Democratic Party.
The government promoting debt forgiveness on mortgages just because homes may not be worth as much as they were previously is bad public policy. When you buy a home you take a risk, several actually, and one of those is that the value of your home will go down.
Certainly, there were some cases of abuse by lenders, brokers and appraisers that should be dealt with, but a debt forgiveness program will only encourage borrowers to strategically default. The strategic defaults lead to lower property values in the surrounding community and create a vicious circle that will prove even harder to break than this most recent economic malaise.
When the government tries to take care of all its peoples’ needs, very bad things can happen. One timely prime example right now is Greece, and its potential ripple effect on the European Union and the world. These countries have overpromised and are now in or heading toward financial catastrophe. Rising government debt has been a key factor there and should sound familiar here in the United States.
Serious financial cuts and reforms rarely become reality despite the election time rhetoric on both sides. Still, the government needs to get the money from somewhere, so the wealthy put theirs in tax havens and the poor are rightfully provided some relief. Therefore it falls on the backs of the middle class–credit unions’ primary members.
Depending on how bad the European debt crisis becomes, it could impact credit unions here in the U.S. Department of Commerce FCU President/CEO Evan Clark pointed out that Europe is our second largest trading partner other than Canada, so whatever happens there will likely have an impact on the U.S. For example, making the Fed keep rates low even longer than already forecast.
Bottom-line pressures are keeping many credit union executives on edge. The Fed recently stating it would hold current rates steady for more than another year wasn’t welcome news, but at least it eliminates the uncertainty, which could be worse. Credit unions at least can plan for no spread into the foreseeable future.
Some can look at lowering their cost of funds, which was something Clark has up his sleeve if necessary, but many credit unions are already down as low as anyone can go. For right now, he’s using a consulting firm to help train his employees in cross-selling loans, which has pushed the credit union’s portfolio up a notch.
Clark also pointed out that all the folks with good credit are paying down debts, not increasing them, so DOC FCU is re-evaluating other ways to make the credit and transaction risks work for loans to borrowers that aren’t A-paper.
Technology has to be a part of any credit union’s plans for growth. DOC FCU will be following other credit unions in taking iPads to the streets to sign up members. This is an excellent way to build awareness for your credit union as well as for the credit union community in general because, when people ask, “What is a credit union?” you can tell them.
Remote deposit capture is another biggie for credit unions that’s a differentiator now but it’s quickly on its way to becoming a must-have. The credit unions that require loyal, long-term members with a good history with the credit union to wait days to clear checks are a thing of the past. Anyone can see the applications for consumers and small business owners can save time, money and hassle using RDC, not to mention the manpower that could be saved by the financial institution handling checks.
RDC guidance from 2009 issued by the FFIEC, which includes the NCUA, even states, “RDC can decrease processing costs, support new and existing banking products, and improve customers’ access to their deposits;” adding, “however, it introduces additional risks to those typically inherent in traditional deposit delivery systems.” Of course management and the board would have to safeguard against legal, compliance, and other risks but the world is moving in this direction. If credit unions don’t evolve with it, particularly in the area of technology, some could face extinction because they haven’t looked out on the horizon and prepared for the future.