Hampel: CUs should 'ride out' the economy
WASHINGTON (9/17/08)--Economic news that’s bad for households will translate to pressure on credit unions, but most credit unions should “ride it out,” according to Bill Hampel, Credit Union National Association chief economist.
He noted that the government’s intervention with Fannie Mae and Freddie Mac is a good thing for the economy and households: “It removed a huge negative regarding the credit crunch, and removed some uncertainty.
“This is not to say that the economy is in for bright sailing. We are still looking for a weak economy well into next year. But, the government’s intervention with Fannie Mae and Freddie Mac at least removes one of the heavy weights on the housing market.”
With a weak economy and falling home prices, “credit unions are under enormous pressure, with the lowest earnings or net income that many boards have ever seen,” he said.
“But our message is: If you make a mistake, fix it. If it’s outside economic factors, ride it out,” he said. “For most credit unions, the recent bad numbers are the result of external factors, not bad decisions by the credit union.”
Credit unions have become collateral damage in the housing crisis. “Decent credit unions making decent lending decisions with decent policies can run into problems. That does not necessarily mean the policies have to change.”
In the “big game of chicken between Wall Street and banks” as to who pays for the Lehman Brothers’ problems, the Treasury didn’t blink, he said. “It’s way too early to see what will happen. However, investors and consumers are more nervous, he said.
“It’s important for credit unions to explain deposit insurance. It’s really important to explain that NCUA insurance works just like FDIC insurance. Credit unions without federal deposit insurance will have to make the case as to why they are safe,” he added.
“Credit unions are still in very good shape. The economic environment is not pleasant, but credit unions are well-capitalized. Still, even though credit unions aren’t responsible for the credit crunch, the low ROAs (return on assets) will be wrenching.”
Credit unions have seen increases in loan demand--almost all in mortgages, largely because the securities market, which funds the housing market, is paralyzed, he said.
“Credit unions have incredibly low delinquency rates. Charge-offs for the first half of the year tripled, but they are still low. Last year they were 0.02%--essentially zero. This year, they are three times that, at 0.06%, but that is still very, very low zero,” Hampel noted.