More Potential Guidance on Debt Workouts

In the July edition of the NCUA Newsletter, Board Member Gigi Hyland discussed TDRs noting that:

NCUA staff is considering a proposed Interpretive Ruling and Policy Statement (IRPS). In concept, the proposal would recommend adopting the charge-off, loan grading and limitations on frequency of modifications included in the banking agencies policies.

We reviewed the banking guidance, which can be found here and here. In summary, this is what it says:

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Credit Unions are the Kings (and Queens) of Niche Marketing

Having attended our fair share of Credit Union conferences, it is easy to see that asset growth is one of the key concerns of the industry, and there is no shortage of ideas to achieve that growth. Among the most popular ideas is Niche Marketing. Niche Marketing is marketing products aimed at satisfying the needs of a particular demographic. We were curious to see what types of creative marketing strategies have been undertaken, so we took to Google to see what the most popular strategies were. We used a highly sophisticated approach in selecting our sample of credit unions. We looked at the first fifty results on Google.

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A Loan Guy’s Take on the State of the Credit Union Industry – Q1 2011

The NCUA recently released the State of the Credit Union Industry Report for the First Quarter of 2011. In this time of economic uncertainty, the good news seems few and far between, so it is exciting to report that most financial statement indicators improved during the first quarter!

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Model Risk

The Office of the Comptroller of the Currency (the “OCC”) and the Federal Reserve (the “Fed”) recently issued some guidance regarding Model Risk. OCC Bulletin 2011-12 and Supervision and Regulation Letter 11-7 outline new supervisory guidance describing how financial institutions should manage the risks associated with model use. By model use, we are referring to the analytical models used by management to evaluate the risks and opportunities of their financial institution. Both third party models and user developed models are within the scope of the guidance. This blog post summarizes the guidance and provides some practical examples of how the guidance can be implemented at your financial institution.

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Shadow Inventory and its Potential Affect on Future Real Estate Prices

Shadow Inventory is the amount of inventory that banks have on their books, but have not yet released to the market. Homes considered as Shadow Inventory could be homes near default or already in bank possession. Although the big bank representatives maintain that they are not purposely stockpiling this inventory, it has been speculated that banks are keeping these foreclosures from market to keep demand up for those homes already on the market. Regardless of intent, this surplus inventory could play a major role in determining future real estate prices.

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Troubled Debt Restructurings and Mortgage Modifications

So far I’ve tried to keep the titles of these posts eye-catching. Sorry for not coming through on this one. Trouble Debt Restructurings may not be exciting, but they have been a hot topic for some time now. I wanted to use the blog to answer some common questions surrounding TDRs.

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Eight Things You Should Be Including In Your Allowance Calculation, and Probably Aren’t

The NCUA recently held a webinar on the allowance calculation. Most of the information covered was basic, but a large part of the webinar was dedicated to the inclusion of qualitative factors in your calculation. The NCUA is expecting you to include and support these factors, but in a poll of the 2,100 attendees, about half in attendance said they are not including qualitative factors in their calculations and 25% of those are say they cannot support their factors.

The logic behind including qualitative factors is that your loan portfolio is different than it was during the period which you calculated historical charge offs, and this should be reflected in your allowance. They gave eight examples of qualitative adjustments. There doesn’t need to be an adjustment for all eight, but you should consider them. I have elaborated on the the items that seemed more significant to the NCUA They include:

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The Lost Decade – The Continued Decline of U.S. Home Prices

Calling the trend in U.S. Home Prices a “Double Dip” implies that there was once a recovery. Although it doesn’t have quite the same ring to it, I think “Continued Decline” may be more appropriate in this circumstance.

According to data compiled by the National Association of Realtors, of the 158 major metropolitan areas evaluated, 148 saw declines averaging approximately 8.2%. The nine metropolitan areas which improved increased approximately 3.2% on average.

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Using Google Places as a Free Tool to Expand Your Marketing Reach

Google Places is the map that comes up when someone types “Lending Near [Insert Geographic Area Here]” into Google. There are pins in the map indicating locations that fit your search criteria that you can click on to obtain more information about the business or go directly to the business’ website. This service is free, but does require you to register with Google Places. You may already be registered with Google Places, but if you aren’t, it is a great tool in reaching out to potential members in your area.

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A Loan Guy’s Take on the State of the Credit Union Industry

I sat down with a copy of the NCUA’s State of the Credit Union Industry report and decided I wanted to look at some past trends. I opened up an Excel Spreadsheet and the past five years of reports (December 2006 to December 2010) and started making some calculations. Below are some things that caught my attention about where the credit union industry is now and where it is headed:

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