Tips for Successful ACH Usage Discussed in New Council White Paper

CUNA Councils
July 1, 2009

Credit union professionals can discover tips to get the most out of automated clearing house (ACH) usage in the first of two recently released white papers from the CUNA Councils.

“ACH Payments: A Key Tool in Your Electronic Payments Toolbox,” from the CUNA Operations, Sales, and Service Council, analyzes this important time- and money-saving tool for credit unions. The paper looks at how ACH works and how it has evolved, its benefits and pitfalls, and future innovations.

Additionally, it provides examples from credit unions that use ACH to originate and receive funds transfers. It illustrates how each of these credit unions approaches the process a little differently, and includes tips for successful usage.

A second white paper, “Differentiating Credit Unions by Asset Size: Key Financial Issues,” examines the characteristics of credit union groups when asset size is the distinguishing variable. The paper, sponsored by the CUNA Chief Financial Officers (CFO) Council, was authored by Dr. Harold Sollenberger and Andrew Stanecki from Michigan State University in East Lansing, Mich.

Using trends from the past four years, the paper arranges credit unions into six asset size groups and draws comparisons. It then offers analysis on key issues, including: member growth, deposit growth, loans-to-deposits patterns, asset quality, capital, earnings, operating expenses, liquidity, and more.

CUNA Council members are entitled to complimentary copies of these white papers; non-members may purchase the white papers for a price of $50 per copy.

The papers are available online in the white paper section of each council site - choose the “OpSS” tab for the ACH paper or the “CFO” tab for the differentiating credit unions paper.

Time to Get SAFE

Joe Brancucci
June 30, 2009

TARP, CU HARP, HASP, HVCC. Surely you've heard of each of these new plans, each designed to either stimulate the economy or make mortgage lending safer for borrowers, or both. The rate at which we've been subjected to new plans, programs, legislation, and regulations in the past 12 months is stunning. Trying to stay abreast of every change and how those changes affect our credit unions and our members has been challenging, especially in light of the lowest rates and highest volumes we've experienced in several years.

Heard of SAFE?

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 is Title V of the Housing and Economic Recovery Act that was signed into law on July 30, 2008. Amidst all else that was happening at the time, and all that has happened since, we thought it a good time to bring SAFE back to your attention as it applies to all individuals who originate mortgage loans, including credit union and CUSO staffs. In short, every originator must be registered and/or registered and licensed by July 31 or December 31, 2010, depending on the state.

“Originator,” in the context of the law, means anyone who assists a consumer in obtaining or applying to obtain a residential mortgage loan by, among other things, advising on loan terms (including rates, fees, other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan. Routine clerical tasks, defined as the receipt, collection, and distribution of information common for the processing or underwriting of a loan in the mortgage industry and communication with a consumer to obtain information necessary for the processing or underwriting of a residential mortgage loan, don't count.

“Residential mortgage loan,” in the context of the law, means any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending Act) or residential real estate upon which is constructed or intended to be constructed a dwelling.

Registration and Licensing under SAFE is the responsibility of the NCUA, in conjunction with the Federal Financial Institutions Examination Council (FFIEC). They are charged with developing and maintaining a system for registering bank and credit union employees, in coordination with the Conference of State Bank Supervisors (CSBS) and an affiliated group, the American Association of Residential Mortgage Regulators (AARMR), which started working on such a system in 2008. The program is to be in place by August 2009.

Registered? Licensed? What's the Difference?

Originators who work for a credit union, not a CUSO, must be registered. Registration involves the following:

• Provide fingerprints for submission to the FBI and other agencies for a state and national criminal history background check
• Provide personal history and experience, including authorization for the system to obtain information about any administrative, civil or criminal findings by any jurisdiction
• Be assigned a unique identifier that will facilitate electronic tracking and public access to his or her employment history and enforcement action record.

While this seems onerous, these requirements are not unlike registration and licensing requirements that have been in place in several states for a number of years. The difference, however, is credit unions were typically exempt since they are closely regulated and examined. While being regulated financial institutions helps in this case, it no longer gets us a free pass.

Licensing and registration are more involved, and applies to employees of CUSOs that originate mortgage loans. To be issued a license and to become registered, employees:

• Can never have had a loan originator license revoked in any part of the country
• Cannot have been convicted of, or pled guilty (or nolo contendere) to a felony in any court during the 7-year period preceding the date of application—or at any time if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering
• Must demonstrate financial responsibility, character, and general fitness to warrant a determination by the system that the person will operate honestly, fairly, and efficiently in handling mortgage loan applications
• Must complete the pre-licensing education requirements described in detail in the new law (with a continuing education requirement for licensing renewal)
• Must pass a written test described in the new law
• Must meet either a net worth or surety bond requirement, or pay into a state insurance fund, as required by the law
• Must be assigned a unique identifier number. CUSO loan originators will have to provide fingerprints which will be submitted to the FBI and other government agencies to receive a state and federal criminal history background check; and a personal history and experience, including authorization to obtain a credit report and information relating to any administrative, civil or criminal findings by any jurisdiction.

What's Next?

The process of becoming registered and/or licensed hasn't yet been defined or published. We do know that it is NCUA's opinion that registration applies to all credit union staff who perform more than routine clerical tasks. In the old days registration would have applied to everyone in the mortgage department but to no one else in the credit union. Today, however, it applies to everyone in the credit union who discusses rates, terms, loan programs and the like, which could mean member service representatives, tellers, call center staff, branch staff and others. We've moved mortgage lending off its island, which strategically makes sense. The proof, of course, is our industry is gaining market share, a trend we want to continue on its upward trajectory.

Watch carefully for more information on SAFE implementation in the next several months. This process will take time and will be time consuming. As difficult as this is, however, the upshot is this: this law creates a significant barrier to entry. Gone are the days anyone who knew mortgage is spelled with the letter “g” and owned a pencil and a calculator could become an originator, earn fast money, and then disappear before the chickens came home to roost.

Joe Brancucci is CEO of Prime Alliance Solutions, Inc. Contact him at 866-726- 5102.

Member Spotlight: Claire Ippoliti

CUNA Councils
June 24, 2009

Claire Ippoliti was born and raised in Philadelphia, where she is currently vice president of lending for Philadelphia Federal Credit Union. She received a BA degree in criminal justice from Temple University in 1987.

“After receiving my degree I had to explain many times how it would be helpful in banking,” she says. “I think having a criminal justice degree is quite effective when reviewing a loan application (back in the day of judgmental lending).”

Claire has worked in the financial services industry since the mid-1980s and joined Philadelphia Federal Credit Union in 1992, where her specialties include risk based lending and lending automation.

Biggest challenge

Membership growth. We continue to struggle with increasing our membership base.

Best advice

Listen, learn, and listen again. If you really want to grow, this is critical.

Greatest benefit of Council membership

Without a doubt it is the networking and sharing of ideas and files.

Best part of my job

Trying to find ways to better serve and help our members.

Hardest part of my job

Firing someone.

Success story

I was leaving work one day when I saw a member run up to Jenn, one of our loan processors, in the parking lot. The member excitedly thanked Jenn for helping her get a new car and wanted to show it to her!

Biggest misconception about my job

That I review loans all day.

Hobbies and interests

Photography—four of my photos have been accepted into juried art shows.

I am also very passionate about volunteerism. We just had our first kick-off project for a program I started in Rehoboth Beach, Delaware. I feel blessed to be where I am in life and want to give back personally and make it easier for others to volunteer.

Recent book

Facebook: The Missing Manual

Life goal not yet accomplished

I would like to start a foundation—maybe after I retire.

If I had an extra hour in the day I would . . .

Sit outside and meditate.

Favorite quote

"You must be the change you want to see in the world” (Gandhi).

If I could spend a day with anyone it would be . . .

Muhammad Yunus—I would like to talk with him about the challenges of starting Grameen Bank and how he overcame the objections.

How I would explain the credit union difference to a prospective new member

Banks are in business legally to make money for the shareholders—credit unions are in business to change the lives of their members.

The Role of Succession Planning and Leadership Development in Successful CU Mergers Addressed in New White Paper

CUNA Councils
June 17, 2009

The role of succession planning and leadership development in successful credit union mergers is discussed in the first of two CUNA Councils white papers.

“Converging Executive Teams: The Role of Leadership Development and Succession Planning in Successful Credit Union Mergers” by the CUNA Councils offers a glimpse into credit union mergers, and the various approaches for bringing together a leadership team, depending on the scope and circumstances of the merger. Current merger trends and the reasoning behind those proposed consolidations are addressed, along with the potential impact of a lack of succession planning.

The paper concludes with three credit union merger case studies detailing how a chief executive was selected, an executive team was brought together, and a leadership development program was created to ensure the merger strengthened the continuing organization and its ties to members.

The second new white paper examines strategies for customizing collections to fit a credit union’s membership and market. “Collections: Not a Cookie-Cutter Operation” by the CUNA Lending Council examines program structure, industry trends, and working with collections agencies. It also looks at collections philosophies of helping members versus managing numbers.

Dana Rawlings, lending council executive committee member and senior vice president and chief operations office for Smart Financial CU in Houston, believes that collections objective should echo credit unions’ “People Helping People” philosophy. “So many credit unions focus on how many calls you make, and on keeping [delinquency and charge-off rates] down,” Rawlings said in the paper. “But if you help members, the numbers will take care of themselves. And those members will send others to your credit union.”

CUNA Council members are entitled to complimentary copies of these white papers; non-members may purchase the white papers for a price of $50 per copy.

The papers are available online in the white paper section of each council site - choose the “Cross Council” tab for the mergers paper or the “Lending” tab for the collections paper.

Small Businesses Still Can't Borrow

CU360
June 17, 2009

Despite billions of dollars of bailout and stimulus money, the credit crisis shows few signs of abating, reports The New York Times, and small businesses are still struggling to find ways to finance their operations.

To get a better feel for how business owners are coping, a Times reporter recently spoke with Doug Tatum, co-founder and chairman emeritus of Tatum, an Atlanta-based consulting and executive search firm that specializes in helping growing companies with finance issues.

CU360 is an online portal for benchmarking tools, market insights, industry data, and analytical information. This article was orginally published online by CU360 at cu360.cuna.org. Reprinted with permission.

For businesses looking to borrow money these days, Tatum's advice is "quit trying." The credit markets are tougher than they have been since the early 1970s.

Banks have become cautious about what they have on their balance sheets, and they still don't know what their portfolios are worth. They're waiting for the next shoe to drop, which could be the commercial markets. Even community banks, eager to lend, report that regulatory pressure restrains the flow of money to small businesses.

Tatum holds out a couple of hopes for entrepreneurs. One is to "quit wasting their time chasing the impossible, and think about changing their business model to become profitable." In other words, grow the capital to promote further growth. Second, Tatum looks to Congress to provide temporary, targeted and timely legislative relief. Unfortunately, with various bills pending—including lifting the cap on credit union member business lending—there's no certainty what will become law this year.

Meanwhile, institutions and policy makers continue to brace for further widespread deterioration in credit quality, according to a Federal Reserve Board senior loan officer study released earlier this month.

The central bank's survey of domestic financial institutions found pervasive pessimism about loan portfolios. Bankers were particularly downbeat on the prospects for commercial real estate loans, nontraditional residential mortgages, and credit cards. More than 90% of respondents said they expect those loans to continue to produce losses.

The Fed notes that the pace of economic contraction "appears to be somewhat slower," but the gloomy outlook from bankers demonstrates just how much remains to be done to stimulate critical markets.

When asked whether banks had altered the size of credit lines, nearly 55% of bankers said they reduced limits on consumer credit cards, while 53% said they lowered lines of credit for financial firms. More than 40% of the respondents said they cut the size of home equity lines of credit.

One positive sign is that while credit for most sectors remains tough to find, it's not as tight as it was several months ago. For instance, 64% of respondents said in January that they cracked down on credit standards for large and middle-market commercial and industrial firms. That number dropped to 39.7% in April.

In the hard-hit commercial real estate market, the percentage of loan officers who said they're tightening standards fell to 66 in April, from 79.3 in January. It was the first time since April 2007 that fewer than 70% of respondents said they were clamping down on commercial real estate lending. Still, none of the bankers said they were easing loan terms, amid relatively weak demand for commercial real estate loans.

With commercial and industrial lending, banks said they tightened credit mostly by raising the cost of credit lines, charging higher premiums on riskier loans, and widening the spread of loan rates over the bank's cost of funds.

Another positive, notes Tatum, is that in the recession following the 1990's dot.com boom, researchers found a spike in the number of start-up companies—more than 2.5 times the historical average. Tatum is betting there will be a huge number of companies that get started over the next few years. "There are far too many talented and educated people out there that don't want to watch Oprah all day," he says. "Innovation happens on the cliff's edge."