Posts tagged ‘stimulus’

How Are You Coping With Your Stimulus Hangover?

Last week’s historically bad news about the rate of inflation further confirms what we have already been suspecting: let’s face it, Larry Summer’s was right all along.  The second round of stimulus spending was the economic equivalent of one too many drinks at the bar and now we have to deal with all those unexpected consequences. 

What this all means of course is that the number one question facing your credit union, regardless of its size, is, as posed by the American Banker this morning: When will depositors start shopping for higher rates? A second question is, when should you start caring?

In case you missed the news, the Bureau of Labor Statistics informed us on Friday that inflation was humming along at a 40 year high of 8.6%. As important as the actual number, however, is the likelihood that this is not some temporary blip caused by rusty supply chains and post COVID animal spirits, but is rather proof that inflation has seeped into the economy and can only be eradicated with increasingly higher and swiftly imposed interest rates.

All this is taking place as credit unions deal with an excess of funds – triggered by those inflationary stimulus payments – and lagging loan-to-share ratios. 

The numbers are eye popping.  In Q4 of 2020, credit unions experienced a 40.2% increase in share drafts growth.  In Q1 of 2022 that number was down to a still historically robust 18.6%.  Little wonder that many credit unions have experienced declining net-worth ratios.

So, at what point will your members expect a greater return on their deposits?  It appears to this armchair wannabe economist that your members are already reacting to interest rate changes.  For instance, the same quarter that saw a 40% increase in share draft growth saw a 4% decrease in share certificates, a trend which has held steady now for a year and a half.  Your members are highly liquid and only have to go food shopping to realize that a dollar doesn’t buy them what it used to. In fact, the same report indicated that real earnings were down for nonsupervisory employees by 0.5% as a result of the inflationary surge. 

The last time we saw this trend play-out in the late 70’s, many credit unions actually saw a dramatic decline in share growth.  It is only a matter of time before we start seeing it again.  Now, I get it.  A period of rightsizing would actually be good for many credit unions.  Still, at what point are you going to want to keep the cash?  It’s an interesting question and those who guess right will be in a much better position two years from now than those who don’t.   

June 14, 2022 at 9:56 am Leave a comment

It’s Back! The Paycheck Protection Program, That Is

The government program everyone loves to hate, and then love again – is back in a third iteration. If everything goes according to plan and the President signs the $900 billion stimulus plan (does it concern anyone that no one seems to know what the exact number is? Then again, when you’re dealing with $900 billion, does a $100 billion here or there matter all that much?) Within 10 days of its enactment, we will be seeing regulations for new, improved, simpler and ultimately much needed rejuvenation of the Paycheck Protection Program. I’ve taken a look at the program, the guts of which you can review in Subtitle B – Community Development Investment on page 358 of this act. Suffice it to say this is not your mother’s PPP – whereas the initial legislative thrust was concerned with keeping people employed at a moment in time when we thought things would be back to normal by next June, the new program greatly expands the expenses for which loans are eligible. For example, eligible businesses can use the money for, among other things, cloud computing services. In addition, a new provision of the law makes businesses eligible for a second loan. Finally, the maximum loan size has been reduced from $10 million to $2 million, and only businesses with 300 or fewer employees are eligible for the loans. 

Now for my soapbox moment. When looking at the value of providing PPP loans, please keep in mind not only the impact on your credit union’s bottom line, but the value to the industry of the prominent participants in this program. In addition, for those of you who can go forward with these loans, please share your stories with your trades. Congress and the public are heavily invested in this program. How they perceive financial institutions engaging consumers will, in my ever so humble opinion, shape the regulations and legislation to come. One other quick note about the legislation – although some of the money is allocated towards education, it falls far short of the funds that states like New York were looking for to help offset pandemic-related costs. Brace yourselves for another unique year as the Legislature continues to operate remotely and budgetary concerns dominate even more than usual. 

On that note, yours truly is signing off until next year. Thanks for reading, with a special shoutout to those of you who took the time to comment on my musings along the way. 

December 22, 2020 at 9:26 am 1 comment

The Most Important Mortgage Guidance

Good morning! I hope everyone enjoyed their Easter weekend. By the way, you know you have been working from home a bit too long when your dog stares at you with a look that says “What are you still doing here?”

Anyway, I spent some of the weekend looking over the avalanche of mortgage guidance that has been churned out on both the state and federal level. I’ve decided that the single best sources of information in dealing with mortgages are this joint statement issued by Federal and State financial regulators and this FAQs issued by the CFPB. Taken together, they encapsulate the major considerations your compliance team should be considering as it seeks to balance the need for compliance against the need to help your credit union members deal with the realities of the pandemic.

Most importantly, the regulators recognize that many of the timelines you are expected to adhere to in normal times cannot realistically be complied with given the onslaught of business. For example, delays in sending loss mitigation related mortgage disclosures will be tolerated so long as your credit union is making a “good faith effort” to comply with its obligations.

The one thing that the regulators stress in both of these documents is the obligation to comply with COVID-19 forbearance requests. The regulators emphasize that:

Servicers must provide a CARES Act forbearance if the borrower makes this request and affirms that the borrower is experiencing a financial hardship during the COVID-19 emergency. Servicers may not require any additional information from the borrower before granting a CARES Act forbearance.

(By the way, the bold emphasis was provided by the regulators, not me.)

Does this mean you are not going to document the forbearance? Of course not. It simply means that you grant the forbearance based on the conversation. You will follow-up by sending the member documentation indicating what has been agreed to including an attestation that the member has requested a forbearance because of COVID-19 related hardship. This approach would also comply with New York’s emergency regulation Part 119.

HERE COMES THE MONEY!

If all goes according to plan, this is the week your members will begin having emergency payments from the government put into their accounts. Here is a good article in the CU Today outlining some best practices credit unions may want to consider in talking to their members about their cash.

 

April 13, 2020 at 9:39 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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