ALEXANDRIA, Va.-NCUA is taking the reigns in steering the credit union community toward serving the underserved, without creating greater regulatory burden. Regulatory benefits to credit unions designated as low-income are also helping credit unions reach out to more in their community. NCUA’s Office of Credit Union Development (OCUD) noted a sharp increase in the number of underserved expansions through the first half of the year in its OCUD Program and Activity Report covering Jan. 1, 2001 through June 30. The agency received 97 requests through the first half of 2001, totaling nearly 5 million new potential members in underserved areas. All of 2000 saw less than 2.4 million new potential members in these areas. “I believe it’s because of us, making the credit unions more aware (that they) are operating near underserved areas,” NCUA OCUD Director Anthony LaCreta explained. NCUA examiners have begun including information for credit unions specific to its particular surroundings about adding underserved areas during the examination process, which has contributed to the increase, he said. NCUA contracted a private company last year to “marry” underserved areas with individual credit unions’ charter numbers. He added that now, nearly at the end of the year, NCUA has approved over 200 requests for underserved expansions including more than 11 million new potential members. Changes brought about by the Credit Union Membership Access Act also helped increase the number of applications, LaCreta said. While underserved areas, which are defined by statute, and low-income designated credit unions, defined by NCUA, do not necessarily go hand-in-hand, as OCUD director, LaCreta is also responsible for low-income credit unions (LICUs). Fifty-three low-income designated credit unions joined the ranks during the first six months of this year for a total of 698, which is on track to tie last year’s total of 107 new LICUs. The majority of the 53 new LICUs were preexisting credit unions that decided to opt for the benefits of a low-income designation from the agency. Some credit unions that qualify as low-income choose not to be designated by NCUA because they are “concerned it will result in additional government intrusion in their lives,” LaCreta said, which he explained is not true. A `low-income’ designation from NCUA means that “more than half of the credit union’s membership earn less than 80% of the average for all wage earners or those members whose annual household income falls at or below 80% of the median household income for the nation,” according to the agency report. Because of their unique status, these credit unions are granted certain benefits, including the ability to accept nonmember deposits; participation in the Community Development Revolving Loan Fund (CDRLF); flexibility in defining their fields of membership; secondary capital; and enjoy an exemption from the member business lending cap. While LICUs did not quite measure up to total share growth, net worth, asset growth, or investment growth of all federally-insured credit unions, they outpaced them in key growth areas, including loan growth, current member growth, and potential member growth. Current member growth at LICUs as of June 30, 2001 increased 3.96%, while overall, federal credit union membership increased 1.5%. Potential membership grew 14.04% at LICUs, but only 7.0% among all federally insured credit unions. Low-income designated credit union assets in aggregate totaled more than $9 billion at the end of June. The growth in assets for the first half of the year totaled $1.2 billion. LICUs averaged a 67% loan to asset ratio, comparable to that of all federally insured credit unions of 65%. LICUs also held $6.2 billion in loans as of June 30. Making so many loans in these areas does appear to take a toll on the lender. The delinquent loan ratio at LICUs was one percentage point higher than for all federally-insured credit unions: 1.77% (up slightly from last year’s figure) and 0.71% as of June 30, 2001, respectively. The difference between the two has been consistent since 1998, the report said, but LaCreta said one could look back probably 10 years and get the same results. The report explained that the higher delinquency rate could be due to LICUs’ loan portfolio mix, which contains 3% more unsecured credit and 5% more in used auto loans than all credit unions. Additionally, LICUs’ members’ income levels are lower, resulting in restricted liquidity for members, and outstanding loans in bankruptcy increased by 0.02% in 2001 to 0.28%. “What’s encouraging is though the delinquency rate is higher, the charge off rate is lower,” the OCUD director said. Charge-offs for the first six months of 2001 for LICUs due to bankruptcy was 28.5%. The ratio was 41% for all federally-insured credit unions. At the same time, LICUs tend to have about 3% more unsecured credit in their loan portfolio than other federally-insured credit unions. While this may be contrary to commonsense because LICU members tend to earn lower income than others, LaCreta also points out that they have less collateral. They also offer different products. For example, a LICU member may need a small loan for an auto repair, whereas most other types of credit union members would not need that, he explained. These types of loans lead to more unsecured lending. LaCreta added that underwriting practices at LICUs is not much different from others. LICU’s net worth ratio has also been historically similar to that of all federally-insured credit unions. While net worth ratios dropped for both LICUs and federally-insured credit unions overall-11.3% year-end 2000 to 11.0% in June 2001 and 11.4% in December 2000 to 11.0%, respectively-both are still well-positioned for prompt corrective action purposes, which requires only 7% to be `well-capitalized.’ Additionally, secondary capital increased by 9.4% over the first six months of 2001. The amount of secondary capital has nearly doubled from two years ago, jumping from $4.5 million in 1999, to nearly $8 million at year-end 2000, and $8.3 million as of June 2001. Another responsibility of OCUD is to administer the CDRLF, which provides low-interest loans and technical assistance grants to low-income designated credit unions to aid in community development. According to the mid-year report, the CDRLF granted 21 loans totaling just over $2.5 million from January to June 2001. In total, the fund had 95 loans outstanding for nearly $11.7 million. However, loan demand exceeds resources; the situation is similar for technical assistance grants. There were 132 requests for technical assistance grants in the first half of this year for $555,482. Only 93 were approved for $203,446. Congress has included a $1 million allotment for the CDRLF in its Veterans Affairs, Housing and Urban Development, and Independent Agencies appropriations legislation for fiscal year 2002, with $350,000 earmarked for technical assistance grants. This year was the first year for the split between the loans and grants, which LaCreta described as a worthwhile program. Otherwise, NCUA would only put the return on the loans towards technical assistance. “The technical assistance program helped immeasurably for year the 2000 change,” he said. The fiscal year 2002 legislation is just awaiting President George W. Bush’s signature. [email protected]

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