Post-Sequester, Banks and CUs Poised to Aid Federal Workers
As the sequestration budget cuts enter their third week, it still remains to be seen how wide of an impact they will have on federal employees, their spending habits and whether they’ll put off taking on any new debt.
The $1 billion Hanscom Federal Credit Union in Hanscom Air Force Base in Massachusetts began offering its Life Line loan on March 1, the day the sequester cuts kicked in. Members have access to a 0% annual percentage rate interest line of credit for 30 days, equal to one month’s net payroll up to $5,000. The loan is attached to a credit union member’s checking account to provide additional funds to cover checks, ATM withdrawals and debit card purchases.
At press time, none of the credit union’s more than 48,000 members have had to take out the loan, said Tom Becker, senior vice president of lending at Hanscom FCU.
“We’re advising our members to wait and see what happens before putting themselves in possibly more debt,” Becker said. “In the meantime, we will suggest pulling a credit report and looking for ways where we can save them money, perhaps a better rate on an auto loans or transferring over a credit card from one of the banks.”
Meanwhile, banks in the Federal Reserve Board’s 12 districts recently reported loan demand was either steady or had increased before the sequestration kicked in on March 1.
Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, Va., San Francisco and St. Louis make up the Fed’s 12 districts.
Refinanced loans mainly driven by continued low rates yielded strong residential real estate loan activity in Atlanta, Chicago, Cleveland, Philadelphia and Richmond, according to the Fed. While demand was up in districts such as Atlanta, for instance, some bankers expect the refinance market to ease up by mid-year as regulatory changes related to reselling mortgages on the secondary market becomes more stringent.
“Many indicated the willingness to lend, but some noted that competitors were offering loans at terms perceived as risky in the long run. Institutions were noted as having the capacity to handle increased loan volumes, but some continued to be conservative,” the Fed reported in its Beige Book released earlier this month.
Business and consumer loan growth was moderate in the Chicago district even though there was some loosening of loan standards by banks in the region, according to the Fed. Residential real estate lending, in particular, continued to benefit from historically low interest rates here. Contacts noted banks are keeping few very mortgage originations on their balance sheet and relying on interest rate swaps to hedge against a potential rise in interest rates.
The sequester cuts are expected to impact federal employees’ paychecks through salary cuts and furloughs. While labor market conditions generally improved, several districts reported restrained hiring with many seeing a rise in temporary employees. In Boston, there was an increase in the placement of permanent and temporary-to- permanent workers. Employers in several districts cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff.
“Wage pressures were minimal in most districts, but contacts reported some upward pressure for several skilled positions as a result of higher demand. Some districts indicated a shortage of skilled workers such as engineers, truck drivers, software developers, and technical jobs,” the Fed said.
Regarding the sequester cuts, Rick Grady, vice president of research for the Texas Credit Union League, said their impact on credit unions will depend on the latter’s select employee groups and membership bases. He pointed out that the $85 billion the federal government is not spending represents a 2.2% budget cut and will leave the deficit spending level at $817.9 billion. Excess spending will still be 28% more than revenue, Grady added.