Posts tagged ‘medallion loans’

Let’s Deal With the Medallion Mess, Once and For All

First, this is one of those blogs where I want to remind you that the opinions I express are mine, and mine alone, and do not necessarily reflect the viewpoints of the Association.

In a letter to the NCUA last week, NAFCU explained to NCUA that its members have expressed concerns about how NCUA will ultimately determine what a fair sales price is for Medallion loans and stressed that “ultimately, if it is determined that a fairly-priced transaction is not feasible at this time for the entire portfolio of medallion loans, the NCUA should consider exploring other avenues to achieve a fair price in the most expeditious way possible.” Since the letter came shortly after a New York City task force urged NCUA to hold off on prematurely selling medallion loans, the comments have been seized on as signaling a split within the industry over what to do about these loans.

In fact, while there are undoubtedly differences between credit unions and within the industry about what to do, the fact that we are finally having this discussion is in everyone’s best interest. NAFCUs letter underscores the need for urgency. Simply put, doing nothing is not an option and the longer regulators, legislators and credit unions dither around about how to resolve these issues, the worse off everyone, including the medallion loan borrowers, are going to be. Conversely, there still is a window, albeit a shrinking one, for these same parties to come together and come up with a plan which mitigates the potential harm of a premature sale of medallion loans. Both sides have a point. Time is running out. But we should wait until the end of the legislative session to see if there is a way we can minimize the inevitable damage that will result from the sale of medallion loans.

First, if history is any guide, the price of medallions is going to continue to fall unless legislators’ step in. Since the beginning of the medallion crisis there has always been an assumption that at some point prices would stabilize. After all, the argument went, even if the prices of medallions were grossly inflated, surely tourists would continue to see a value in flagging the iconic yellow cabs as they check out the sights of New York City.

But this increasingly quixotic thinking is belied by the facts. According to the Task Force report, in May 2008 independent medallions sold for more than half a millions dollars and a package of two corporate medallions sold for $1.3 million. In contrast, by November 2019, the average sale price for medallions was $164,518, with a median price of $200,000.55. Throughout 2019, prices hovered around $200,000 and 66% of the medallion transfers that took place in 2019 were due to foreclosures.

We’re not putting the Uber genie back in its bottle. Your average consumer is more than willing to ditch the higher priced, often discourteous service, one receives in a yellow cab in return for a cheaper, better Uber ride.

Given this reality, of course the sooner the medallions can be sold the better. But it makes no sense to pull the plug precisely when the New York State Legislature, the New York City Council and maybe, just maybe, NCUA have the opportunity to take a comprehensive approach to dealing with this issue once and for all in a way that stabilizes prices. Let’s see what reasonable heads can agree on before pulling the plug. For instance, a public/private partnership which funds medallion purchases could potentially stabilize prices. What’s the harm of waiting a few more months?

February 10, 2020 at 10:19 am 1 comment

Hood Clarifies NCUA Position on Bank “Mergers”

In a recent column in the American Banker, (subscription required) NCUA chairman Rodney Hood clarified some important issues related to the small but increasing number of bank/credit union combinations. Typically I try not to pay too much attention to banker hyperbole since there really are more important things for credit unions to worry about than the fact that banker associations don’t like them. But given the extent to which misinformation is increasingly confusing issues surrounding credit union acquisition of bank assets, I was glad to see the Chairman address some important misconceptions.

First and foremost, credit unions can’t merge banks into them. Instead they can enter into purchase and assumption agreements in which they agree to purchase some or all of a bank’s assets. As the Chairman explains “when speaking of credit unions “acquiring” banks, these credit unions are actually purchasing bank assets and certain liabilities in market based transactions. These purchasers could include loans and deposits” but cannot include stock.

This is more than a legalistic distinction. It means for example, that when assessing whether or not to go forward with an acquisition, credit unions have to take into account the compatibility of the financial institution’s customer base with its existing field of membership. In fact, describing these transactions as mergers is like describing an estate sale as a real estate transaction. When a bank, or any other corporation for that matter, completes a merger, it is generally stepping in the shoes of the previous company and taking on all its obligations. In contrast, when conducting a purchase and assumption (P&A), the purchaser is only taking legal responsibility for the assets it purchases.

Then there is the policy issue. Specifically, is there something inappropriate about credit unions purchasing bank assets? Unlike an increasing number of my fellow Americans, I actually believe that the free market works pretty well. Why shouldn’t community banks have the choice of maximizing their assets by entertaining acquisitions by credit unions as well as banks? If I were running a community bank I would welcome any potential purchaser who is going to treat my customers well and give me the best value for my business.

One more thing, the banking associations would be doing a lot more for their average community bank member if they went to congress and advocated for changes in the law which gave them the ability to compete once again against larger banks. Of course this won’t happen. Besides, it is so much easier to obsess about a relative handful of credit union P&As than it is to acknowledge that larger banks are gobbling up smaller banks out of existence.

NCUA to meet with Task Force

The Credit Union Times is reporting this morning that NCUA has agreed to meet with the New York City Taxi Medallion Task Force which released its recommendations for the industry this past Friday. This can only be good news as any resolution of this issue is going to involve NCUA.

 

 

 

 

 

 

 

 

February 5, 2020 at 9:34 am Leave a comment

Taxi Task Force to NCUA: It’s Time To Get Involved

Hello folks.

On the train back to Albany yesterday during the unofficial National Football Hangover Day, I read this much anticipated report released by the New York City formed task force which recommends solutions to the NYC Taxi Medallion crisis.

The issues surrounding medallion loans have been analyzed so much now that it’s hard to come up with any radical new proposals. To me, the most important impact of the report is that it underscores that NCUA has to get actively involved in working with both NYC and the State Legislature if there is going to be any viable plan created to help drivers holding unaffordable medallion loans. After all, according to the Task Force, NCUA holds approximately $1 billion in Medallion Loans and, if it decides to offload this portfolio en masse, policy makers will lose any ability to play a role in the loan modification process.

As a result the Task Force believes

“… it is imperative that stakeholders work quickly to develop a practical option for medallion owner debt relief. Such relief may involve collaborating with the NCUA with respect to the portfolio of medallion loans it currently owns.”

 

Escrow Litigation Heats Up

I don’t want anyone to tell me that I did not warn them that the days of federally chartered credit unions not having to pay mortgage escrow interest may very well be coming to an end.

As I mentioned in this blog, there is currently litigation, modeled after similar lawsuits in California, alleging that Federally Chartered Banks are no longer exempt from New York’s law requiring mortgage escrow holders to pay interest. Although this litigation does not involve credit unions, the legal logic underpinning the exemption for federally chartered credit unions is virtually identical to that of banks.

On January 30th, lawyers for Bank of America urged a federal court in New York to fast track the appeal of similar litigation in New York. In a letter to the court, the bank noted that a proliferation of cases challenging the escrow exemption “underscore the need” for an expedited appeal.

What does all this mean for you federally charted credit unions that provide mortgages in New York?   While the issue is still being litigated, you should certainly be taking the time to plan for the likelihood of having to pay interest on those mortgage escrows.

February 4, 2020 at 9:56 am 1 comment

Dividend Payouts, Housing Reform and Taxi Lending Highlight CU News You Can Use

Show Me More Money

I figured I’d start with some good news this morning. NCUA announced that it will be paying out dividends totaling $160.1 million. This means that NCUA has been able to issue close to $900 million in equity distributions over the past year. Right now the NCUA has a Share Insurance Fund equity ratio of %1.39 to aggregate credit union assets. Under the law, any money in excess of the ratio must be returned to credit unions. The money is available as a result of NCUA’s decision to end the temporary Credit Union Stabilization Fund which was set up in the aftermath of the corporate crash.

GSE Capital Requirements Emerge As Key Issue In Housing Reform Debate

A key fault-line in the debate over how to reform the GSE’s spilled out into the public yesterday. In a speech before the Mortgage Banker’s Association laying out his view of what the housing industry should look like the future, FHA Director Mark Calabria argued that Fannie and Freddie should exit conservatorship but only after huge capital infusions. He explained that, “I can’t tell you what exactly the new model will look like. But, as a regulator, what I do know is that the future role and structure of Fannie and Freddie will be determined by the amount of private capital they’re able to build up.”

In the meantime, Dan Layton, the CEO of Freddie told lawmakers, albeit in bureaucratic speak, that the capital plans being drawn up by the Trump Administration are crazy. He called plans to have the GSE’s raise $125 billion in capital “unprecedented” and predicted that it would take at least 5 years to raise up to $50 billion. Five years is the length of Calabria’s term at the FHFA and he made it clear yesterday that when he leaves his post he intends the housing market to be a different place than it is today.

Taxi Lending Investigations Keep Piling Up

Now for some bad news. The investigations into taxi medallion lending practice are piling up quicker than presidential tweets. Yesterday evening the Times tweeted out that New York Senator and Minority Leader Chuck Schumer is requesting “a review of the regulation of credit unions in a taxi industry.” A good place to start would be the review of the regulation of credit unions in the taxi industry already conducted and released by NCUA’s Inspector General. New York City Mayor DeBlasio, Assembly Banking Chair Zembrowski and New York Attorney General James have already called for hearings and/or started investigations. As these investigations go forward let’s not forget about two companies called Uber and Lyft.

May 22, 2019 at 9:04 am Leave a comment


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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