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At The End Of The Listening Tour, A Lot To Talk About, Act On

From the corner office that is home to the chairman of NCUA at its headquarters in Alexandria, Va., there is a commanding view of the George Washington Masonic Memorial, a 333-foot-high stone structure modeled on the ancient lighthouse of Alexandria, Egypt. (You probably missed it on your tour of Washington attractions, but it does include in its museum the working tools and trowel used to lay the cornerstone of the U.S. capitol.)

Built in the 1920s, it was erected in honor of the country's first president and to the values of freemasons (of which Washington was a member), which at its heart is a self-improvement organization for both its members and for the communities in which they live.

When NCUA decamped from the District in the 1990s and set off a wave of development in the area by building its new HQ, it's unlikely the Memorial and what it stands for were factors in the site choice. And yet here's hoping a little of it's mojo will inspire the agency.

The latest person to sit in that corner office certainly knows about the mess she's inherited, some of which is of the NCUA's own making. The current crisis isn't a matter, as the old saying goes, of knowing where the bodies are buried. These CU bodies are like zombies, "undead" corporate losses, delinquencies and failures at natural-person CUs, and an economy that can't seem to pull the stake from its heart.

NCUA Chairman Deborah Matz has spent the past few months leading Town Halls across the country and online. Matz has referred to it as a "listening tour." Credit unions have been happy to oblige with an earful. "There has been a lot of interest and its very gratifying to see people take time out to participate," Matz said recently during an interview in her office. "We had 750 people at the online Town Hall. It shows a level of concern and a commitment. I hear concern the same concerns time and again in some cases. We have tried to be transparent."

Matz, who was accompanied at those meetings by her fellow board members Michael Fryzel and Gigi Hyland, along with the agency's senior staff, said she came away from those meetings with a number of impressions, one of which is that board members in particular "need to be educated. These are complex issues." What Matz didn't say, but what is obvious if you've been to a Town Hall, is that it's clear there are some who don't have even a handle on the most fundamental of issues currently in play. As a result, NCUA is working to produce a DVD for volunteers and others that will have a history of corporate CUs and a plain-language explanation of what has occurred.

At those Town Halls many CU execs, angry over the (not-so-special) assessments and problems they see as greedy risk-taking by others that was none of their fault, have had hard questions, such as why NCUA, which had examiners on-site at both U.S. Central and WesCorp, completely missed the red flags.

"There was a lot of finger-pointing at NCUA over who was at fault. We do bear part of the blame," acknowledged Matz. "But it is also very clear to us that boards were not educated. This was a touchy subject but it's a concern of mine as they were making important decisions."

But how did credit unions, and specifically corporates, get to the point where two are in conservatorship, a third technically is, billions in capital has evaporated, and NCUA is poised to hit credit unions with yet another special assessment later this year? "Not to pass the buck but the economy had a lot to do with it," said Matz. "A lot of economic forecasts went out the window. No one had anticipated how deep this recession would go. We did have examiners in corporates who should have picked up on this. But in addition to the examiners, the corporate boards, which were made up of CEOs, should have picked up on this. There were bad decisions made by the management at corporates, and by the rating agencies. The corporate investments were in AAA-rated securities."

Matz, who is in her second tour of duty as an NCUA board member, is quick to note that during her first term on the board she cast the lone vote against a rule change related to the corporates. "In 2002 I voted against the changes in corporate rule. I felt there were not rules against sufficient (investment) concentration limits, because concentration limits were the problem. At the time it was a very difficult vote. There was a lot of opposition to the position I took." Much of that opposition was voiced in the comment letters, including from the CU trade groups.

More substantively, Matz said comments at those Town Halls has led the agency to make modifications in its corporate proposal, especially related to the ALM piece of the rule.

As for returning to the board as chairman, after being active in Democratic politics and the Obama campaign, Matz said the difference from being a board meber is that "As chairman, I am involved at the very beginning of the process and get to help to share in steering the policy. I get to determine what the direction will be."

Matz added she is most impressed with the quality of the agency's staff and the work they are doing "under intense circumstances. The magnitude of the challenge has surprised me."

Matz said NCUA continues to work to bolster field staff. In an economy where many are now considered chronically unemployed, never has it been so good to major in bean counting. The agency is scrambling to add examiners, noted Matz, at the same time the FDIC is also hiring more than 1,000. "They are hard to find. They are in demand right now between us and the other regulators."

The NCUA Chairman said the agency also looks to hire other experts, such as it did with PIMCO, whenever necessary. We are not defensive about outside help and getting another set of eyes."

During CUNA's recent GAC there was call after call for expanded member business lending for credit unions. Commercial loans, of course, have taken down a few credit unions, a lot more banks, and an entire industry--thrifts. So what about the risks presenting by getting what you wish for?

"I support expanding the cap," said Matz. "The current cap was put there for arbitrary reasons and not for business reasons. But I am concerned over how CUs do handle member business lending. Whether it is lifted or removed, behind it will come strong rules. I am also concerned about hiring experienced lenders who do due-diligence, and especially the due-diligence in loan participations. It's often assumed other credit unions do the due-diligence and that adequate underwriting has been done, and that is not the case."

With all that is on its plate, Matz has recently begun calling for credit unions to significantly grow their membership. When I asked why, Matz responded, "That is what will sustain credit unions in the future. Otherwise, they will whither and die. Survival of credit unions is important, but also important is the service that credit unions provide, especially to young people.

And we're going to hold feet to the fire. If a credit union moves to a community charter, will make sure not cherry picking and are providing service to the underserved."

Left unresolved for now is how the agency will handle what are known by the almost complimentary-sounding euphemism, "legacy assets." Apparently, "worthless crap we're stuck with" just doesn't look as good in the PowerPoint. NCUA is currently conducting an analysis of those "assets," and "then we will be on our way to a resolution. I think 2011 is going to be a very critical year for corporates. I think we will have dealt with that by 2011. But I think NCUA will be dealing this for 20 years."

Frank J. Diekmann is publisher of Credit Union Journal and can be reached at fdiekmann@cujournal.com.

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