New Federation Publication Focuses on Innovation

NEW YORK – A new publication produced by the National Federation of Community Development Credit Unions highlights CDCUs which have innovated in order to expand their community development impact. “Sometimes CDCUs want to try to do things which are difficult to do within the traditional balance sheet and operations of a credit union,” explained Cliff Rosenthal, executive director of the Federation. “Being innovative about how they partner and organize their operations can help them expand their impact,” Rosenthal said. Community Banking Partnerships: Legal Structures That Work reports on eight CDCUs which have adopted an innovative approach to tackling problems for their members. The eight are the $49 million Alternatives FCU, the $16 million Appalachian FCU, the $6 million First Delta FCU, the $38 million Hope Community CU, the $6 million Neighborhood Trust FCU, the $63 million Santa Cruz Community CU, the $184 million Self Help CU and the $38 million Opportunities CU. “Serving the low-income market means assuming and managing additional risk and cost,” the report notes. Established and operated properly, affiliate structures can help CDCUs meet their ambitious social agenda without jeopardizing their status as regulated financial institutions. Rosenthal explained that the report actually had its origins overseas, in Britain, where Rosenthal has been actively advising different credit union organizations about how to organize and build community development efforts with credit unions. “CDCUs in the United States are constantly searching for ways to do more for their communities, while keeping their balance sheets and operations within the bounds prescribed by regulation,” he said. “In the United Kingdom, CDCUs generally are smaller and younger than in the U.S., and have grown up along side other community development financial institutions (CDFIs) with different powers and functions. Our colleagues in the U.K. are searching for organizational solutions that can achieve synergy by linking the two types of financial institutions in a common framework.” The report noted that CDCUs in both the U.S. and Britain often need more resources than their credit union work alone can generate to offer their members such needed services as financial education, financial counseling and other sorts of development work. But even though a credit union might be serving the most poor and disadvantaged population, because their corporate status prevents them from being recognized as 501(c)(3) charities in the U.S. or as charities under U.K. charity law, other structures become necessary. Significantly, the report did not paint only an optimistic picture of CDCUs that adopt affinity structures to help them meet their goals. Those structures bring potential pitfalls too, including having divided authority when there are two many CEOs in a group structure; having different cultures which have different ways of doing things; and attracting different sorts of employees and volunteers; and differences in accountability. For example, one respondent noted that the credit union was very much transaction-oriented while other units charged with fundraising or planning, for example, have broader purviews and perspectives, the report noted. Tensions may result when the employees of one organizational unit are compensated at competitive market rates, while others are lower paid with comparison to the salary scales of social service or anti-poverty organizations. The report contains examples of successful CDCU affiliate operations in an appendix. Residential Mortgage Delinquencies Rise from Hurricanes’ Impact, but Foreclosures Fall WASHINGTON – The Mortgage Bankers Association released the findings of its third-quarter 2005 National Delinquency Survey recently based on data as of Sept. 30, and the findings are a mixed bag. The seasonally adjusted delinquency rate for mortgage loans on single-family residential properties – 4.44% – was down 10 basis points from the third quarter 2004, but up 10 basis points from the second quarter 2005. But whereas seasonally adjusted delinquencies are generally down for fixed rate loans – 2.15% to 2.11% – they’re up for adjustable rate (ARM) loans – up seven basis points from 2.23% to 2.30%. In addition, compared with the second quarter of 2005, the seasonally adjusted delinquency rate among subprime ARM loans increased from 10.04% to 10.55%, while the rate for subprime FRM loans decreased from 9.06% to 8.79%. The percentage of loans in the foreclosure process was 0.97% at the end of the third quarter, a drop of 19 basis points from the same period 2004 and also a decline of three basis points from the second quarter 2005. The foreclosure inventory percentage was down for all types of loans over the year, and it also declined from last quarter among all loan types except for subprime. Likewise, the percentage of new foreclosures was also down over last year. However, since the last quarter, the percent of new foreclosures increased 13 basis points for subprime loans and 12 basis point for FHA loans while remaining unchanged for prime loans and VA loans. The MBA offered that the increase in the third quarter delinquencies “reflect the impact of Hurricane Katrina – higher delinquency rates in Louisiana and Mississippi resulting from the destruction and dislocation caused by the storm.” When the hurricane effects were eliminated, the MBA said delinquencies for all loan types were lower. “If the effects of Hurricane Katrina are removed, the total delinquency rate decreases 13 basis points rather than increasing 10 basis points,” it stated, adding that the foreclosure percentages aren’t yet impacted by Katrina. MBA’s Chief Economist and Senior Vice President Doug Duncan said, “Hurricane Katrina was the largest natural disaster this country has faced in the last few generations, and obviously has had a major effect on the local housing markets in Louisiana and Mississippi. In addition, we have the impacts of Rita in Texas and Louisiana and Wilma in Florida to consider. However, the overall U.S. economy grew at almost 4.3% in annualized real terms during the third quarter of 2005.” He noted that the U.S. economy has been adding 147,000 payroll jobs per month. As for homeowners’ ability to make their mortgage payments on time, Duncan said that figure is 96%. He added though that “it is likely that rising short-term rates will impact some borrowers with adjustable rates. In addition, natural gas prices have roughly doubled from where they were this time last year. That and the higher costs of home heating oil are driving up home heating bills this winter and will likely strain the ability of some borrowers to make their mortgage payments.” “Given the choice between heating their homes and making their mortgage payments, many homeowners will choose to let their payments go delinquent,” he said. -