Volume 28, Number 13                                                           July 15, 2008

HEADLINE NEWS

Those Darn Zeros!!! The Auto Lending Environment
Bruce Six, Senior Vice President, Asset & Liability Management, Mid-Atlantic Corporate Federal Credit Union
     Once again the auto industry is trying to tempt consumers into the showroom with offers of zero percent interest for terms as long as 72 months. This is despite the fact that many potential auto buyers won’t qualify for the low-rate auto loans. All the manufacturers need to do is get the people in the door, and let the American love affair with cars take over.
     What does this mean for your credit union? History shows that credit union new auto underwriting essentially stops when the manufacturers are offering very low-rate loans. So how can a credit union compete? 
     Credit unions should continue to promote new auto lending and educate members about the ability to take the manufacturer’s rebate and apply it to the loan amount at the credit union. The math almost always works out better for the member, but the “too-good-to-be-true” side usually overrules the math and the member goes with the zero percent.  Of paramount importance is not trying to price the credit union’s new auto loans lower than what your credit union can afford. Consult with your asset and liability people when setting rates, so you can see the impact rate decisions will have on the credit union’s future balance sheet.
Rethink Your Credit Union’s Used Car Lending Program.
     What else can be done? If your credit union is still pricing used auto loans above new auto loans, you might want to think about why. Here are a few starting points to use when thinking about all loan pricing:
□   Does some form of collateral back the loan?
□   How liquid is that collateral?
□   What underwriting standards are being used?
     Auto loans (both new and used) are collateralized by the car itself, but we all know that the depreciation on a car is front-loaded. In the first two years many cars will lose up to 40% of their value, and many cars have lost over 50% in three years. Couple this with the fact that many credit unions will finance more than the list price of the car, and your credit union could find itself with a loan that is only partially collateralized, but is priced as if it is fully collateralized.
     Used cars are farther along on the depreciation schedule so they are losing their value more slowly. Couple that with the fact that most credit unions do not lend above the value of used cars, so you have a car that is better collateralized when the loan is made and should stay better collateralized as the loan matures. If your credit union is using the same lending standards for both new and used auto loans, you can actually make a case for the interest rate on used autos being lower than new autos.
     Now here is the best part – the manufacturers’ captive finance services and the banking industry still treat used auto lending like the ugly duckling. Used autos are almost never priced aggressively, and they are usually not heavily promoted. This gives astute credit unions a great place to put excess liquidity, while using a loan they understand and are good at delivering, with little by way of price competition.
     If you have any questions regarding the services and programs offered by Mid-Atlantic Corporate, please contact a Corporate Account Manager by calling (800) 622-7494.

COMPLIANCE RECAP

IRS Increases Mileage Rates
     In response to soaring gas prices, the IRS announced on June 23 that it was raising the standard mileage rate that taxpayers use to deduct business miles to 58.5 cents a mile, an increase of 8 cents. Ordinarily the IRS sets the standard mileage rate in the fall for the next calendar year. The new rate will apply to miles driven from July 1 to December 31 of 2008. The old rate will apply to miles driven during the first six months of the year. The new rates are contained in IRS Announcement 2008-63.  

HUD Issues Guidance on Reverse Mortgage Programs
     If your credit union offers or is thinking about offering reverse mortgages, the Department of Housing and Urban Development (HUD) recently issued guidance on the use and compensation of "advisors" in the home equity conversion mortgage (HECM) loan process.
     HUD’s letter describes the ways in which a non-approved entity or third party may support the origination of HECMs and the limited circumstances under which they may be compensated, consistent with both applicable FHA policy and applicable requirements of the federal Real Estate Settlement Procedures Act (RESPA).
     The letter also provides a review of the services an FHA-approved entity may perform for compensation in the origination of FHA loans. Mortgagee Letter 2008-14 is available on HUD’s website at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-14ml.doc

Disclosures for Subprime Loans
     Federal financial regulators, such as NCUA, have issued disclosures that financial institutions may provide borrowers who are considering subprime loans. These disclosures, or "illustrations," are intended to assist CUs and other financial institutions in implementing the consumer protection provisions of the Statement on Subprime Mortgage Lending. The Statement addresses risks and other issues relating to subprime mortgage lending practices, specifically for adjustable-rate mortgage (ARMs) loans. Although the Statement outlines the type of information that should be provided to consumers, the use of these specific disclosures will not be required. They are intended only to serve as illustrations and became effective May 29.

Electronic Delivery of Disclosures    
     In November 2007, the Federal Reserve Board (FRB) issued final rules to clarify requirements for providing consumer disclosures in electronic form for Regulations B, E, M, Z and DD. The mandatory compliance date is October 1, 2008.
     Credit unions doing business over the Internet have been taking advantage of the old rules for delivering disclosures required to be given at the time of an application. Under the new rules, this information must be available electronically for applications taken over the Internet. Take a few minutes to review your website to ensure that the following disclosures are available and up to date:
►  ARM disclosure and CHARM book (if doing variable rate closed end real estate loans)
►  Notice of applicant’s right to appraisal (if lender does not routinely provide)
►  ECOA information for government monitoring (for first mortgage purchases and refinances)
►  HELOC early disclosure and brochure
►  Credit card tabular format information (also known as the “Schumer Box”)
     Additionally, NCUA examiners may be more aware of the E-Sign “consent” and advertising rules, and therefore be more likely to verify compliance with those rules. Many financial institutions doing business over the Internet are not adhering to the E-Sign consent rules that require consumers to “demonstrate” consent – which means more than a consumer hitting a button stating “I agree.” A summary of the E-Sign rules are found on CUNA’s website: http://www.cuna.org/compliance/member/eguide/eguide_esig_sum.html.
     The new rules clarify which types of disclosures require consent and which do not. Generally, disclosures required on or at application are exempted from the consent requirement for Internet based actions. A full set of the rules appear at: http://www.federalreserve.gov/newsevents/press/bcreg/20071101a.htm

Social Security’s New Debit Cards
     A new debit card being offered by the Treasury Department will give nearly 4 million recipients that have no bank accounts an alternative to paper checks that they must cash, usually at a price. For more information about this new service, go to the Treasury website: www.directexpress.org. The News Journal published a set of questions and answers about the program on June 16.

CU SYSTEM NEWS

NCUA Letters to CUs
The following letters can be found on NCUA’s website at http://www.ncua.gov/letters/letters.html.

     Letter 08-CU-15: Regional Coalitions. This letter to CU boards contains a copy of a brochure that outlines the benefits of joining a regional coalition, whose common goal is to facilitate the recovery of the financial services sector following a national disaster or man-made attack.

     Letter 08-CU-16: Financial Trends. The credit union financial trends for the first quarter of 2008 are highlighted.

     Letter 08-CU-17: Mortgage Market Trends. This letter studies the impact of current mortgage market trends on corporate credit unions.

NCUA Board Gets New Chair
     Michael E. Fryzel was confirmed by the U.S. Senate to a seat on the NCUA three-member board on June 27, 2008. As the NCUA chairman designee, he will replace Chairman JoAnn Johnson, whose term expired August 12, 2007.
     “I congratulate incoming Chairman Fryzel on his confirmation confirmation by the U.S. Senate and extend every good wish for his tenure,” said Chairman JoAnn Johnson. “NCUA has benefited from strong, forward-looking and practical leadership over the years, and I am confident that Mr. Fryzel will continue that tradition. I stand ready to assist Mr. Fryzel in the transition and eagerly anticipate my return to my family and my roots in Iowa.”
     Michael Fryzel's experience with credit unions spans many years in the public and private sector. He served as director of the Illinois Department of Financial Institutions in the 1980s, and he has represented many credit unions during the intervening years practicing law in Chicago. In addition, Mr. Fryzel is a 17-year member of the Illinois Governor's Board of Credit Union Advisors. His NCUA Board term will expire August 2, 2013.
     Michael Fryzel issued a statement through NCUA recently stating that he will be ready to take the oath of office and assume the duties as chairman of that agency at the end of July. Chairman Johnson will preside at NCUA’s July board meeting.

	NCUA Board nominee Michael Fryzel before his June 3 Senate Banking Committee hearing on Capitol Hill Photo provided by CUNA

Bauer Financial Ratings
     Kudos to the following CUs that received 5-star ratings from BauerFinancial, Inc., an independent financial institution rating and research firm: American Spirit, Chestnut Run, Delaware Alliance, DEXSTA, Dover, DPL, First State Refinery, Milford Memorial, New Castle County Delaware Employees, New Castle County School Employees, Provident, and U-Del. The ratings are based upon 2008 first quarter financial data as reported to financial regulators. Five stars (superior) is the highest rating given by the firm. Ten additional CUs received four-star (excellent) ratings: Del-One (Delaware), Delaware River and Bay Authority Employees, Delaware State Police, Edge Moor DuPont Employees, ICI America, Louviers, Preferred Financial, Seaford, Sussex County, and Wilmington Postal. The three Delaware CUs with less than $1.5 million in assets are not rated.

New League Library Resources
     The League has acquired the following reports from the Filene Research Institute, which have been added to our lending library. Please contact Bernadette Hines to borrow any of these reports.

• Building a Culture of Credit Union Excellence – Explores compensation systems, human resource management practices, and organizational development.
• Mapping the River: An Interim Report From the 30 Under 30 Group – Ideas for generating products and programs that will attract young adults to credit unions.
• Credit Union Costs and Consolidations – Research on the question: Is there empirical evidence that CUs can reduce their costs by operating on a large scale?
• Facts, Figures, and Food for Thought From the Ohio State University’s Consumer Finance Monthly – Introduction to consumer financial data and potential implications.

Treasury Department Releases New Guidance on Health Savings Accounts
     The Treasury Department and the IRS have released Notice 2008-59, which provides employers and employees with a new set of formal questions and answers on Health Savings Accounts (HSAs). Notice 2008-59 contains more than 40 new frequently asked questions and answers that cover a wide range of topics, including who is an eligible individual, issues related to High Deductible Health Plans, contributions and distributions to HSAs, and establishing an HSA. Go to Notice 2008-59.

DELAWARE NOTES

CHESTNUT RUN FCU and DELAWARE ALLIANCE FCU recently held member fairs. In addition, NEW CASTLE COUNTY SCHOOL EFCU will host a member appreciation day on August 15.

Delaware’s best young talent was showcased at the Kid’s Fest, Teen Idol Contest on Saturday, June 14, at the Delaware State Fairgrounds. The top three best performances were awarded prizes, courtesy of the 2008 Teen Idol sponsor, DEL-ONE (Delaware FCU).  This year’s first place winner was Brittney Trout, who sang “Independence Day” by Carrie Underwood.
     At the CU’s booth, three bikes were given away, courtesy of Del-One, from drawings that took place throughout the day, and all guests were given a chance to spin the Del-One prize wheel and win a variety of prizes ranging from Rita’s and Toys “R” Us gift cards to a three-hour limo ride with Racing Limos of Dover.

At right: Del-One’s Marketing CoordinatorTanya McDaniels
and Teen Idol Winner Brittney Trout

Mid-Atlantic Corporate FCU held its 32nd Annual Meeting on June 19 at the Wyndham Gettysburg Hotel in Pennsylvania. Delaware was represented by the following attendees: Jerry King, Chris Kaczmarczyk, Allen Riley, Steve Cimo, Dave Clendaniel, Don DiMatteo, John King, as well as Pat Mahaney and Jane Bailey from the League.
     The following incumbents were re-elected to serve three-year terms on the Mid-Atlantic board: Joan Moran, CEO, Dept. of Labor FCU, Washington, D.C.; Mike Pastirik, CEO, United Community FCU, West Mifflin, PA; and Connie Wheeler, CEO, Penn State FCU. Dennis Flickinger, First Capital FCU, York, PA, and James McCaw, Viriva Community CU, Philadelphia, were both reappointed to the Supervisory Committee. Delaware’s own Jerry King, DEXSTA FCU, was appointed to fill the Supervisory Committee position previously held by John Gulick, who announced his retirement upon the completion of his term.

         
         Jerry King

SUSSEX COUNTY FCU recently began using Mid-Atlantic Corporate’s member share drafts and home banking images programs.        

EDUCATIONAL OPPORTUNITIES

July/August QuickBites Teleconferences
One-hour sessions run from 11 a.m.-noon:
•  7/16 Robbery Awareness
•  7/22  Auto Lending in a Soft Market
•  7/31  The Youth Market 
•  8/07  Regulation Z
•  8/12  Increasing Non-Interest Income
•  8/20  Pay Day Lending Seminar
•  8/26  Decedent Accounts: When a Member Dies
Two-hour sessions run from 11 a.m.-1 p.m.
•  8/14  HR: Transitioning to Supervisor
The fee for the one-hour sessions is $99; the two-hour session is $169. The deadline to register with Bernadette Hines is one week prior to the session.

CU Volunteer Program: Board Officer Roles. Two opportunities: Wednesday, July 16, from 4:30-6:30 p.m. at Del-One (Delaware FCU), 270 Beiser Boulevard in Dover, and Thursday, July 17, from 5:30-7:30 p.m. at the League office in New Castle.

CU Members’ Reverse Mortgage Information Seminar – Wednesday, July 23, from 6:30-8 p.m. at the League office. The seminar, facilitated by Academy Mortgage, will provide older home owners (ages 62 and over) with information on reverse mortgages. This product allows them to borrow against their home’s equity without having to repay the money until the home is sold or the borrower moves out or passes away. CUs are asked to enroll their own members and then report the number of attendees to Jane Bailey at the League no later than July 18.

TOGETHER is published on the 15th and 30th of each month by the Delaware Credit Union League, 4 Quigley Boulevard, New Castle, DE19720. Information to be published should be sent or phoned into the League no later than the Monday of the week preceding the publication date. Telephone: (302) 322-9341 or (800) 292-7875. This newsletter can also be found on the League website: www.dcul.org. Hard copies of the newsletter will be mailed to each credit union CEO/manager for distribution to those without computer access. Readers can receive a reminder when the newest edition is posted to the Web by emailing susan@dcul.org. Editor: Alice Smith (alice@dcul.org).