Q: What are some opportunities that credit unions — and more specifically, CFOs — can take advantage of in the coming months?
A: There are several. CFOs, in particular, might want to consider:
and chief economist at GraphsandLaughs LLC
- The possibility of negative interest rates and what to do if they occur.
- Further diversifying your revenue sources as net interest margins get additionally squeezed.
- Altering the average duration of your assets so as to earn higher returns.
- Looking at your competitors to see which ones are weak. Can you take them over, buy them out, or take on some of their members?
- How to deal with climate change causing shorelines to rise and thereby affecting mortgages and collateral for other loans.
- Ensure you’ve boosted your loan reserves sufficiently to withstand losses when the recession comes.
Q: What are some potential challenges opposite that?
A: Well, some default rates are going to go up. Some loans you thought were good are going to turn bad, and you’re going to have to do some workouts with clients. Do you call the loan or decide that it’s better to rework it? You’re going to have to beef up your workout department; recessions create such a need.
Q: What are some of the issues to stay on top of, more specifically with mortgage lending?
A: On the mortgage side, you have two issues. You have refinancing activity — which is deader than a doornail, and there’s not going to be much refinancing unless there’s a real necessity; no one’s going to refinance for kicks, you know? And then, for first-time mortgages, those numbers aren’t going to be good either because home prices are continuing to rise — albeit more slowly — and rates are going up, which is really hurting sales. Rates are raised to slow down the economy, and autos and housing are where it’s most sensitive on the consumer side
Q: How much of this housing trend has to do with generational differences in homebuying?
A: Well, there’s a little bit of that, but that’s declining actually. Each generation eventually gets into homebuying. It’s just taking a little bit longer for each one — about a year, year and a half longer for each generation. Now, the younger millennials are a more empirical, and conservative, bunch. They’ve seen the impacts from recessions on their parents and grandparents, and they’re increasingly leery of going into debt and less interested in the stock market. So, the pitch to them has got to be more in line with that.
Q: Staying in that generational vein, how can credit unions better help younger generations with their financial literacy?
A: It’s education and knowledge, my gosh! These poor students. You have to start in high school. These kids go to college and then, next thing they know, they graduate with $50,000 in debt. And they don’t know what this means. You’re 18 years old, and how do you know how much this debt means? The earlier you can get to them, the better. Teach them how to do student loans and teach them how to buy a car. These are the two biggest purchases people make prior to buying a house, and they don’t understand. People go to buy a car, and all they care about is what their monthly payment is. That’s a terrible way to think about buying a car! If you can get to these kids early by going into high schools, signing them up for checking and savings accounts, hopefully you can keep them for a while.
Q: Do you have any other advice for credit unions?
A: First, congratulations on keeping your tax exemption — and keep fighting to protect it. Banks are keenly aware of this advantage, and they’re very unhappy about it. Continue to talk to Congress and make the point that you are small (generally speaking compared to banks), that you’re local, that you provide services that bigger institutions and banks don’t provide, and that you fulfill an important function. Don’t stop pushing that message. One more thing: No one knows when the next recession will be, and if somebody tells you they do, they’re just lying.
Elliot Eisenberg, Ph.D., is president and chief economist at GraphsandLaughs LLC. He was a keynote speaker at NAFCU’s inaugural Credit Union CFO Summit in 2018 and will be speaking at the 2019 CFO Summit as well.
This article was published in the January-February 2019 edition of The NAFCU Journal magazine and was updated in October 2019.
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