Archive for December, 2012

Impact of the fiscal cliff on credit unions

Credit Union Magazine offers insight into what the impact might be on credit unions in the worst-case scenario that we do fall off the “fiscal cliff.” So far, no deal has been made to avert the cliff, although the Credit Union National Association’s (CUNA) senior economist Steve Rick predicts that it’s likely some deal will be made that essentially kicks the can down the road.

The major impacts on credit unions will be due to the uncertainty faced  by their members. If the U.S. economy is thrown back in a recession, people will be fearful of losing their jobs, will have less disposable income, and overall will be less inclined or able to take on any additional risk.

“Members wouldn’t want to risk taking out new loans because they’d be afraid of losing their jobs,” Rick explains. “So loan growth would be significantly curtailed; probably back to the levels we saw in 2009, 2010, and 2011. So we could go back to zero loan growth. “That would affect our income,” he continues. “Fewer loans on the balance sheet and more money in the investment portfolio would mean dropping net income for credit unions. That would have a severe impact on the bottom line going forward.”

A drop in income for credit unions means that they will be more restricted in their own operations and programs. Things like new branches and new hires will not be feasible. But ultimately, it’s the impact on credit union members that will be the biggest blow.

Credit Union Magazine highlights one credit union that is trying to get ahead of the game by providing services to members in the case we do drop off the cliff. Belvoir Federal Credit Union in Virginia will offer members:

  • A fiscal cliff emergency loan, which allows members to borrow up to $5,000 at 4.99% (0% for the first 60 days) with a maximum 12-month term. Members may defer their first payment for 60 days.
  • Loan workouts;
  • A no-charge skip-a-payment option for consumer loans; and
  • Free financial coaching.

Hopefully other credit unions will follow Belvoir’s lead in addressing their member’s concerns and challenges, no matter what the outcome of the current fiscal policy debate. Educating members about the fiscal cliff impacts– and the impacts of fiscal policy overall–  is also key. The decisions made in Washington are not just about policy debates. Every individual, family, and community is affected, and it’s important that people are aware of and engaged in these important debates– and that they have financial institutions ready and willing to help them navigate these uncertain economic times.

This will be the last post of the year for The Support Center. Wishing you all the best this holiday season!

 

December 21, 2012 at 10:22 am 1 comment

How long will it take to reduce the unemployment rate?

Today the Washington Post summarizes some calculations made by the Brookings Institution showing how long it would take to get the nation’s unemployment rate down to 6.5 percent (a rate that the Fed considers a “normal” level). According to the Federal Reserve, it will take another 2.5 years– but that’s if job creation continues steadily at 220,000 jobs per month. Economists at the Brookings Institution took a look at how long it would take to reach the 6.5 percent rate with different assumptions about the rate of job growth. Here is what they found:

  • rate of 150,000 jobs/month – Spring 2018
  • rate of 200,000 jobs/month – Fall 2015
  • rate of 250,000 jobs/month – End of 2014
  • rate of 300,000 jobs/month – Spring 2014

The last time the unemployment rate was at 6.5 percent was in 2008.  These calculations cannot account for all the factors that influence job creation or labor force participation rates, so it may take even longer than these calculations indicate. In addition, the story will be very different among the states, as many still have much higher unemployment rates than the national average. North Carolina’s unemployment rate is above 9 percent.

In October, the Budget and Tax Center reported that the jobs deficit in North Carolina– the number of jobs needed to replace the jobs lost in the recession and to keep up with population growth– increased. In the beginning of the year, the jobs deficit was 530,600. By October it was up to 550,600.

This shows just how important job creation is for our state and the nation in reducing unemployment and in achieving a true economic recovery. As the Washington Post states, these numbers indicate that “Job creation is America’s first, second, third, and fourth most important problem.”

December 20, 2012 at 9:56 am 3 comments

The Support Center featured on WUNC

WUNC featured a story on The Support Center’s new report on community development financial institutions (CDFIs) in North Carolina. Our President/CEO, Lenwood V. Long, Sr. was interviewed about the important role the CDFIs play in expanding access to credit to entrepreneurs across the state.

Click on the link below to listen to the story and share!

Community Lenders Help Small Businesses

 

December 19, 2012 at 12:02 pm

New NC economic development alliance established

We’re just two weeks away from the end of the year, and still there’s no news of a deal for the “fiscal cliff” or the farm bill. The news reports that the President and the House Speaker are moving closer to an agreement. The farm bill is still being discussed as a potential piece of the fiscal cliff deal. But on both fronts, but there is still nothing concrete to report.

In North Carolina news, however, there is a new group that has been formed to address statewide economic growth and development issues. The North Carolina Communities and Business Alliance (NCCBA) will focus on the challenges faced by cities and towns in the areas of balanced growth, transportation infrastructure, water & wastewater infrastructure, education, and tax fairness. The NCCBA is governed by a Board of Directors that includes former governors, former local elected officials, members of the General Assembly, and other leaders. Notably, Keith Crisco, the state’s commerce secretary, will serve on the Board.

The NCCBA’s first Board meeting was held earlier this month. The press release issued by the NCCBA emphasizes its focus on towns:

“We recognize that our communities are major economic engines for our state,” said Alliance founding member Louis Bissette Jr, former mayor of Asheville and former president of the Asheville Area Chamber of Commerce. “If they are thriving, North Carolina’s economy is also strong and healthy.”

Its mission statement says that it will partner with the state to develop strategies that will allow both businesses and communities to grow and prosper. If it stays true to its mission and keeps the focus on both businesses and communities, the NCCBA could do much to improve the economic conditions of many parts of our state that continue to face significant challenges.

The NCCBA has stated that its initial focus will be to share and learn from various stakeholders. In this effort, it should make sure to meet with those organizations and businesses that serve the most distressed and underserved areas of the state. Without a focus on uplifting those areas that are most in need, the state’s overall economic recovery will continue to lag. There are many groups– non-profits, service providers, financial institutions, businesses– that work on the ground to create economic growth and opportunity at the local level. It’s important that any strategic effort to bring stakeholders together for the greater good of our cities, towns, and communities incorporate these voices.

December 18, 2012 at 10:49 am

New report: CDFIs create jobs, expand access to capital

The Support Center released a new report today, examining the important role that Community Development Financial Institutions (CDFIs) play in the state’s economy. As traditional banks pull back from small business lending and tighten their lending standards, CDFIs have stepped in to fill the gap. In 2010, the 17 CDFIs in North Carolina helped to finance 33,000 businesses and developments that have created 3,100 jobs across the state.

In addition, the report found that:

  • In Fiscal Year 2011 alone, the 999 CDFIs nation-wide made 16,000 loans and investments, worth $1.2 billion, that supported 5,000 small businesses, 17,000 affordable housing units, and 25,000 jobs.
  • In North Carolina there are 17 CDFIs. As of 2010, they hold $1.17 billion in assets, and nearly 33,000 outstanding business, microenterprise, home purchase, consumer, and residential and commercial construction loans. The projects that CDFIs supported created over 3,100 jobs.
  • CDFIs are healthy and financially sound institutions. They perform better on key performance ratios than standards established by the CDFI Fund as well as industry comparisons.
  • CDFI credit unions and loan funds in the state also provide financial education and technical assistance services to help their members and borrowers, as well as to members of their broader community, increase their financial management skills.
  •  CDFIs can be a strategic partner to the State of North Carolina and to private institutions, such as banks, in revitalizing the state’s economy. As such, they need additional affordable capital and investments to meet the increased demand for capital and financial services.

The services provided by CDFIs are more important now than ever before, as CDFIs provide a vital link to financial services, capital, and financial literacy that help to improve the financial and economic security of individuals and families in underserved communities. CDFIs are not only support the businesses that create much-needed jobs for our state, but they also serve as generators of community economic development. CDFIs can be a partner to the public and private sectors in building our state’s economy as we continue on the path toward economic recovery.

 

December 17, 2012 at 9:34 am 2 comments

Credit unions to surpass $100 billion in mortgage lending

The New York Times reports of a milestone for U.S. credit unions. For the first time, credit unions in the U.S. will surpass $100 billion in mortgage loan originations, and much of this is due to recent growth and interest in credit unions.

Bob Dorsa, the president of the American Credit Union Mortgage Association says, “We’d be remiss if we didn’t give a shout-out to the major banks for being annoying to consumers and forcing people to seek out other alternatives.” His tongue-in-cheek comment is based on a real sense of frustration among bank customers over fee increases and a lack of accountability to customers. As an alternative, credit unions provide almost all of the same personal and business banking services, but at lower rates and with a greater focus on customer service.

In regard to mortgage loans, credit unions were able to largely stay afloat during the fiscal crisis. Credit unions mostly stayed out of subprime mortgage lending, and they held onto the mortgage loans they did make to service them in-house. Another NY Times article from last summer explains that as a result:

when the financial crisis halted Wall Street mortgage securitization — the system in which investment banks sliced and diced loans into securities — credit unions weren’t as affected as others. They held the loans in their own portfolios rather than sell them, and had been doing so for years. For instance, at Melrose [credit union in Queens, NY], Mr. Nemeroff said,  “because part of our policy is to maintain a solid financial relationship with our members, we retain the majority of our portfolio.”

As we’ve blogged about before, the Occupy movement and the Bank Transfer Day of 2011 sparked an interest in seeking out alternatives to banks. One Bank Transfer Day itself, 664,000 people became new members of credit unions across the nation. The Credit Union National Association reported that the year ending July 2012 saw 2.2 million new credit union members.

Although traditional banks play a role in our economy and in the financial services sector, they may not be a good fit for all customers. And although credit unions have been around for a long time, there has not necessarily been an awareness about them and the services that they provide. A robust financial sector should have different kinds of institutions that can meet varying needs.  It is important that those who are seeking an alternative can access their local credit unions. For now it is encouraging that the growing interest in credit unions is facilitating that connection.

December 14, 2012 at 10:11 am

Low-income North Carolinians need public transit

The Budget & Tax Center has released a new report today, which examines the impact of new transit investment on low-income populations. The report shows that, as the state invests more into public transit, it must make sure to reach low-income people, who are the most reliable users of public transit.

According to the report, 67 percent of workers in the state who commuted by public transit had incomes below $25,000 in 2011, and this share is increasing. Renters are also more likely to commute by public transit as well.  As the report states:

Expenses related to transportation and housing—such as the cost of a vehicle, insurance premiums, rent, and utilities—consume more than half of all household income, forcing many low- and moderate-income families to make tradeoffs  between these expenses and other expenses like food, child care, and health care. These expenses make affordable transportation options that much more important to households with less disposable income.

In addition, as housing becomes less affordable in the state’s urban area,  more lower-income families are forced to move further away from the urban cores. Job opportunities and public transit are both primarily located in the urban areas. This mismatch between affordable housing availability,  jobs, and transit makes using public transit more expensive and inaccessible for many lower-income people.

The report argues that new transit developments should both focus on where these workers live, and also incorporate investments in affordable housing near new transit stations. Without intentional and comprehensive planning, the new transit developments may not be able to reach their full capacity:

Research shows that new transit investments often lead to neighborhood change that thwarts the transit system’s ability to reach preferred levels of ridership. Neighborhoods near new transit stations tend to attract higher‐income and vehicle-owning residents who are less likely to use public transit compared to core transit users. Efforts to manage these externalities through comprehensive planning should be a leading priority among policymakers engaged in transit planning. Without early, coordinated planning, the spatial mismatch between transit, affordable housing, and jobs will likely continue to grow.

This is particularly important as we look at how the economic recovery has been uneven across the state. With growing income inequality, disparities in the unemployment rates among regions, and reduced economic mobility, some areas of the state will be left behind without conscientious planning that connects residents to economic opportunity.  Providing accessible and affordable public transit options will help to ease some of the barriers faced by low-income and rural/suburban populations in accessing jobs. In addition, transit-oriented affordable housing development will help to ensure that low-income residents are  not pushed out of their neighborhoods as a result of transit developments.

Investing in public transit is certainly an important goal for the state, particularly as the population continues to grow. Keeping in  mind accessibility for all North Carolinians–especially those who use and depend on public transit — will make these investments a success in the long-term.

December 13, 2012 at 12:12 pm 2 comments

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