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The country’s economic recession has certainly taken a toll on individuals and businesses alike. Companies in Utah haven’t escaped the consequences of the downturn, and the state’s banks and credit unions are no different.
But those in the industry say things are looking up and that improvements are being seen.
“[Banks and credit unions] are doing fairly well,” says Utah Department of Financial Institutions Commissioner Ed Leary. “Banks with loans have suffered, but as they’ve stabilized they’ve gained capital. The sense I get is that they’re not getting worse but getting better. They’re holding their own. We’re seeing a slow, steady climb upward.”
Many banks and credit unions found themselves in challenging times at the outset of the recession, when the real estate market saw developers, property flippers and home buyers who were taking out loans on properties and homes they couldn’t afford. But Scott Simpson, CEO of the Utah League of Credit Unions, agrees with Leary. He says the worst is over for most credit unions.
“Credit unions are doing OK,” he says. “The trajectory is right for most of them. Things are turning around slowly. A lot of the bleeding that we had is done. A lot of losses have been dealt with.”
Facing a Tsunami
As for the future of the financial industry, consumers should have less to worry about than the banks and credit unions themselves, says Leary, who is concerned about the new federal regulations from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
“The overall concern with banks and credit unions is the new emphasis on consumer protection that will bring new requirements banks and credit unions will have to comply with,” says Leary. “To be told coming at you is an additional set of rules is fear of the unknown.”
Banks and credit unions simply want to be there for their customers, but these new regulations bring additional burdens to the institutions, says Leary.
“Banks want to get back to the business of making loans to people,” he says. “Federal pundits say these rules and regulations are going to be a ‘tsunami.’ This causes stress to the banks and credit unions and brings extra costs to ensure compliance.”
Among Simpson’s most significant source of uneasiness for credit unions, meanwhile, is how to get capital. He says capital—the total of a financial institution’s money and property—is the metric the government uses to measure the institution’s strength.
“Credit unions’ biggest issue is a capital challenge,” he says. “We’ve had a lot of capital evaporate. Credit unions can only get capital from earnings; they can’t issue stock like banks.”
But while the credit unions face these challenges, Simpson says their customers should have no anxiety about doing business with them. “A credit union member should not feel any different. The products and services are still there.”
While Simpson admits average credit union savings rates are not favorable—“terrible” in his words and in reality less than 1 percent—home buyers or those looking to refinance can find the lowest rates seen in decades. Simpson says the mortgage loan rates are lower than they’ve been in his lifetime.
“Borrowing is awesome right now,” he says. “There’s no greater time to borrow money. If you can qualify, there’s a great opportunity to grow.”
Because of risks and new rules and regulations, underwriting can be complicated. But if a customer is in the market to purchase a home or restructure his or her loan, now is an ideal time to act. At many credit unions, 30-year conventional loans currently sit around 4 percent, while 15-year conventional loans have dipped below 3.5 percent.
“Rates are fairly complex; they’re market driven,” he says. “But the feds have talked about leaving the rates the same into 2013.”
In regard to real estate, Simpson says he’ll feel even better about financial institutions when home prices hold steady. “It would be nice for home values to stabilize and go back the other direction,” he says.
Overall, speaking to banks, credit unions and the general population, Leary and Simpson each urge everyone to be patient and wait out the economic storm.