Carnac's Answer: The Best of Times, the Worst of Times The Question: What Will Be CUs' Fate in 2009?

Reviewing the predictions I made for 2008 in my first column for Credit Union Times, I realized two things. First, some predictions were accurate, while others were not. Second, I needed to be a bit less cautious and more explicit.I did predict that a CUNA/NAFCU merger would not go through and it didn’t. I truly believe there is a place for both organizations; CUNA has the size and strength, and NAFCU maintains focus strictly on benefiting federal credit unions. Past issues like the overhead transfer rate and private primary deposit insurance as well as the current debate over using NCUSIF funds for liquidity have demonstrated the rationale for two separate groups.However-and not to beat a dead horse-the two have got to find a way to co-exist.The group that raised the issue of a merger between CUNA and NAFCU was 100% correct that the trades must place nice in the sandbox. It does credit unions no good to have their legislative and regulatory advocates at each other’s throats. The two organizations need to set aside their individual and collective egos to speak with one voice on the issues they can logically agree on and not allow taking credit for successes get in the way of that, or there might not be anything to take credit for.I predict that CUNA and NAFCU will not be in any serious merger talks in 2009, and unfortunately, neither will there be any improvement in their working relationship.Also, related to the trades, I had mentioned that CUNA should revisit its Christmas tree structure (CUNA at the top-state leagues-credit unions). This has not happened, at least not publicly. What sparked the comment last year was the disaffiliation of Navy Federal from the Virginia league and, consequently, CUNA.Particularly as credit union budgets are further constricted and industry consolidation presses on, either CUNA or the leagues could be hurt by the elimination of this inextricable bond. In states dominated by federal charters, leagues could wither while stronger leagues could pull credit unions, primarily probably state charters, away from CUNA.Another prediction I made last year was that CURIA would never become law as it was structured at the time and, so far, this has proven correct. It’s even truer now as the financial world was turned on its head during 2008 and regulatory relief is as out of vogue as a Republican White House. I also said that some of the provisions would become law if for no other reason than for Congress to say it did some good; this did not happen.The trades are working to reframe the key issues of risk-based capital and expanded business lending as economic stimulus. These provisions may even have a better chance this way. After all, it’s the least Congress could do for credit unions, which have run responsible shops and stayed above the fray as much as possible. If lawmakers are looking for low- to no-cost economic stimulus-which they haven’t demonstrated up to this point, but they better wise up-expanding credit union power in this manner is the way to go.My prediction on these crucial matters for credit unions is that each will pass the House as separate pieces of legislation in 2009. The Senate will take them up by 2010, and the president will sign them into law. While these are the more critical items, a whittled-down underserved area expansion will be tacked on to the MBL expansion piece.However, on the flip side, I predict that a Community Reinvestment Act expansion to credit unions has a very good chance of passing during the 111th Congress if not as early as 2009. Chairman Frank is in support of it and the state charters in his state that are subject to it are not complaining. He also has the benefit of wider margins in the House and Senate, not to mention a friendly administration.Additionally, I said that there would be fewer credit card portfolio sales in 2008 so credit unions could get closer to their members and deepen relationships, and this has happened (see story, page 20).Another accurate prediction: “However, in 2008, if credit unions truly do want to gain market share and strengthen member ties, mortgages done right will be one of the avenues to pursue.” Now at 3.9% market share, up from 2.0%, credit unions are well positioned to even double that percentage this year. According to CUNA data as of October 2008, fixed-rate first mortgages shot up 15.4% year-to-date, while adjustable-rate mortgages jumped 11.8%.I had predicted a few more Norlarco-type problems for CUs, which fortunately turned out to be wrong. However, CUs are still getting socked by the regular old credit crisis, poor economy, lower investments and increased bankruptcies.Also to come in 2009: credit union consolidation from current 8,198 to 7,600 while experiencing burgeoning membership growth, relatively speaking, as well as assets.I had thought delinquencies would stay under 1.0% in 2008, which turned out to be wrong, but the 1.15% CUNA said it reached remains well below the more than 3.0% from the 1980s that credit unions recovered from.As the flight to safety continues, credit unions loan-to-share ratio will drop below 75% from its current 83.4%. Credit unions’ capital ratio will fall to 10% in 2009, and it if does, that’s OK so long as it remains enough to counter balance risk. Credit unions should not adhere to false benchmarks established in better times.Finally, Credit Union Times will continue to deliver the latest, well-rounded and most accurate news in credit unions. But, also, keep an eye out for some changes in the New Year. Until then!–Comments? E-mail [email protected]