Monday, April 29, 2013

NCUA, Where are You?

One of the things that comes with combining the roles of credit union industry cheerleader, regulator, and deposit insurer into one federal government agency is that conflicting motivations can lead to inaction, or maybe, confusion.  That may be the case now with the National Credit Union Administration (NCUA).  The agency either has a short memory or is suffering from an acute case of somnambulism.

The Baltimore Business Journal recently reported that the Navy Federal Credit Union, the largest credit union in the United States, is marketing 100% financing, no-money down mortgages.  No down payment, no private mortgage insurance, and jumbo loan amounts up to $1 million dollars.  Here's the press release from the Navy Federal Credit Union hawking the product.  According to the Business Journal article, Navy Federal originated $740 million of these loans in 2012, about 7% of its total mortgage originations.

The credit union touts its lower-than-average default rate, but did anyone in the executive suites of both the Navy Federal Credit Union and the NCUA think about the signal this sends to the national mortgage markets and the potential for creating another slippery slope to national financial disaster?

Need we remind the NCUA that we experienced the most severe housing downturn since the Great Depression due to liberal, sometimes nonexistent, mortgage loan underwriting practices?  Everyone assumed that the never-ending escalator of rising home values would bail out the credits.  What all-seeing oracle in the corporate sanctum of the Navy Federal Credit Union, with apparently extraordinary powers of prophecy and prognostication, can ensure against a double-dip in the current weak real estate recovery?

With all of the concern about home buyers having significant skin in the game and, post-Dodd-Frank, lenders being legally liable for ensuring borrower repayment capacity, why on earth would the NCUA, as credit union regulator and deposit insurer, allow this product to be marketed?  

In early April, Bloomberg News reported that the Navy Federal Credit Union is unlikely to be designated "systemically important" by the Financial Stability Oversight Council (FSOC).  The Navy Federal Credit Union had $54 billion in total assets as of March 31, 2013.  If the FSOC does not designate the Navy Federal Credit Union as "systemically important", it should at least add the NCUA to its list of systemic risks.

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