Watch Great Day S.A. Introduction

Alamo Chapter of Credit Unions
Financial Forum 2008 Questions & Answers

Political Climate
Mortgage Lending
Consumer Lending/Auto Lending
Collections/Credit Counseling
Education Lending
Deposits/NCUA Insurance Fund
Business Lending
Investment Advisor
Legal Expert

Political Climate

1. How does the Stabilization Bill affect me and the credit union where my money is at?

Answer
The Stabilization Bill was designed to assist large investment banks and others that were involved in sub-prime mortgages and toxic financial instruments recover and help stabilize the volatile marketplace. Fortunately, no one in the Alamo Chapter of Credit Unions participated in those activities and remain safe and sound financial institutions. Your money is safe in your credit union and now insured to at least $250,000.

2. Are we headed for another Great Depression?

Answer
While we are experiencing a difficult time in the financial arena, leading economists and Treasury Secretary Paulson have said that while we should expect to continue to experience a turbulent marketplace for several more quarters, that the actions that the government has taken to open up the credit markets will eventually succeed in helping us out of the current situation. They have also said that while a recession is possible, another Great Depression seems extremely unlikely.

3. Is it safer to hide my money in my mattress, or in a box in the freezer, or bury it in the backyard right now?

Answer
While you should seek the advice of your financial advisor on the proper place to invest your money, putting your money in your mattress, the freezer or buried in your backyard are all generally considered dangerous and ill-advised. We would suggest that you deposit your money in a federally insured financial institution where your money is safe, like a credit union where your money on deposit is insured to at least $250,000.

4. Why is the federal government bailing out banks when their plight is due to the greed of their executives?

Answer 
The government took the action of passing the Stabilization Bill to rescue the country’s financial system which was in danger of collapsing. Financial experts attribute the failures of some financial institutions to a number of contributing factors. The bill contains several controls to be exercised as the rescue of institutions proceeds.

5. Why haven’t I seen any credit unions affected by this financial crisis?

Answer
Credit unions are generally conservatively managed institutions that are focused on service to their members. They have avoided making sub-prime mortgage loans and, by their nature, avoid unnecessarily risky investments. As a result, credit unions today are in a good position to act as safe harbors for people seeking a safe and secure financial institution.

6. Is my money safe at a credit union?

Answer
Your money is safe at a credit union as credit unions are insured by the Federal government and members’ money on deposit is insured to at least $250,000.

7. How can I determine the strength of my financial institution?

Answer
You can ask to see a copy of the credit union’s latest annual report which provides financial information on an annual basis. You could also as to see your credit union’s latest financial statement which can be made available upon request.

8. How do I become a credit union member?

Answer
Every credit union in the Alamo Chapter of Credit Unions has membership criteria and you must meet those criteria to be eligible to join. However, with 37 credit unions in the Alamo Chapter, everyone in our community can qualify for membership in at least one and probably several credit unions. Membership requirements may be community based, based upon being an employee of a certain company, or available through a variety of membership options. You can go to the Alamo Chapter web site, www.alamoccu.org, to see who the credit unions in the Alamo Chapter are and how you can qualify for membership.

Mortgage Lending

1. With mortgage rates moving up and down so much, how can I get the best rate?

Answer
Lock in your rate.  The market is volatile.  When to lock is a bit of a gamble, you can lock your rate (standard period of 30 days) when you are comfortable with the published rate but most lenders require that certain approval conditions be met prior to locking the rate.

2. I have an adjustable rate mortgage and I’m afraid of my payments increasing. What can I do?

Answer
Check with your lender to find out how often your rate can adjust and what the cap or maximum amount of the adjustment can be.  You might also consider refinancing into a fixed rate. Rates are still at historic lows.

3. Can I apply for a Mortgage Loan with a credit union?

Answer
Yes!  Most credit unions members do not realize that their credit union offers mortgage lending.

4. Is it going to continue to be difficult to be approved for a home loan?

Answer
Underwriting guidelines for many mortgage lenders have tightened due to the fallout from the subprime lending industry therefore it may be harder than it once was to qualify for a loan with certain lenders; however, credit unions remain conservative in their lending practices and are less likely to have major changes in borrower qualification guidelines.

5. My ARM payment just increased and I owe more on my home than it’s worth. Why shouldn’t I just walk away?

Answer
Foreclosure is something that can affect your ability to borrow for years and, in some cases, hinders your credit for a lifetime.  Real Estate is cyclical and chances are your value will increase eventually and you will gain positive equity in your home.  If you are having trouble making your payments, talk with your lender to determine what options are available to get through this period.  Eventually when your property value increases you could consider refinancing.

Consumer Lending/Auto Lending

1. No car dealership is willing to give me blue book value for my vehicle. Why?

Answer
NADA or Kelly Blue Book values are a guide that dealers and consumers use to gauge the value of their automobile. Most dealerships will use the Trade-In value as the base value of a car being traded in and then start making deductions for improvements the car will need to recondition the vehicle for retail sale. If the car is considered to have high mileage (over 75,000) then the dealership is more likely to count the mileage deduction twice – as it is harder to sell a vehicle with high mileage unless it is a really good deal for the consumer. The dealership also realizes that a large percentage of consumers are trading their vehicle in because they are beginning to experience some form of mechanical problem with the vehicle and now passing it on to the dealership to deal with. Basically, the dealership is attempting to estimate the investment needed to recondition the vehicle to make it available for sale and that can significantly drop what they will offer you for trade-in.  You also have to remember that the dealership is in the business of buying and selling cars and they do make money on what they are able to up sell the trade in for as compared to what they paid and invested into it.

2. What determines my credit score and can I improve it since I hear that all financial institutions are only loaning to people with a 750 and above score?

Answer
Credit scores can range from 300-850 and higher is better.
There are several factors that help determine your credit score and here are a few tips: Pay your bills on time – if you have missed payments – get current and stay current, try to keep balances low on credit cards and other revolving credit, don’t open a number of new credit cards that you don’t need, watch your level of revolving availability – the amount of outstanding balances as compared to your total available limits.

Regarding only lending to consumers with scores of 750 or higher - I can only speak on behalf of credit unions and credit unions are safe, strong and ready to help their members with all types of borrowing needs including business, auto and mortgage loans and not just members with high credit scores over 750.

3. Are credit unions in a position to lend money?

Answer
Yes.  Local credit unions are safe, strong, and ready to help their members with all types of borrowing needs including business, auto, and mortgage loans.  You can visit your local credit union to apply for the type of loan you need.  Different credit unions offer different types of loans.

Collections/Credit Counseling

1. Things are tight in my household and the cost of groceries and gas has cut into my budget. I can pay my mortgage and car loan regularly, but not my credit card. There is a small amount on it, less than $1,000, so what can I do to get this worked out? What are the consequences if I don’t pay it?

Answer
Remember priorities are housing, food and transportation for your family. Seeking advice from a certified credit counselor and creating an action plan to get your budget in order is the best course of action. Credit card companies have agreements with various not-for-profit agencies like CCCS (Consumer Credit Counseling Service) to work out payment plans with consumers to fit into their budgets.

2. I lost my job and I’m worried that I might not be able to pay all my bills including home and auto loans…what should I do?  Should I pay a little on all of them or pay some and not others?

Answer
Remember priorities are housing, food and transportation for your family. Certified counseling agencies, like CCCS have referral banks that might be able to assist with the priorities. An action plan can also be developed to get you through these hard times.

3. What are credit unions doing to help young people from getting in over their heads with debt?

Answer

• Educating young members is the key to helping them stay out of debt.
• Credit unions go to schools, parent-teacher groups and after-school programs, teaching young people of all ages about money, budgeting and debt. Young people today cannot afford to enter their adult years without knowing how to manage their own finances, take out a loan, what affects interest rates, or how to read a credit report.
• Special accounts are available just for younger members that provide an early start on saving and learning about debt and how to stay out of it.
• Simple lessons, such as balancing a checkbook, are valuable for young people.
• Whenever we provide classes for any group, no matter the age, we encourage them to take the lessons they’ve learned and share them with the entire family.

4. My Student Loans are coming due and I cannot afford to make the payments, what do I do?

Answer
You need to gather all the information on all your student loans and call to make an appointment with either your lender or a certified counselor through a counseling agency like CCCS, that can discuss the various options that you may have to pay the loans or in some cases get them forgiven.

5. I’ve got so many bills to pay, how do I know which ones are more important if I can’t pay them all one month?

Answer

• Always pay the essential bills first: mortgage/rent, food, health care/prescriptions, car/gas, and utilities. That keeps a roof over you head and food on the table, maintains health, and enables you to get to work to earn the money you need for everything else.
• Then, pay for the things you use everyday, like your phone.
• If you face a similar struggle every month, check to see if you can change the payment due date on some of your bills. A week or two might make a difference to help you pay all your bills on-time.
• It’s important to stay in contact with your lenders to let them know when you will be making your payment. This lets them know you keep your word with them.

Education Lending

1. My daughter is a senior in high school and I’m worried that she won’t be able to get student loans to help pay for college…what should we do?

Answer
First and most important, parents and students should not panic.  The first things parents and students should do is to complete the financial aid application or FAFSA to know what kind of federal and state financial aid resources the student may be eligible for at the school of choice. In respect to student loans, there are different student loan options available and many sources of information.

The U.S. Department of Education administers the Federal Family Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan) Program. Both the FFEL and Direct Loan programs consist of what are generally known as Stafford Loans (for students) and PLUS loans (for parents). Schools generally participate in either the FFEL or Direct Loan program but sometimes participate in both. Under the Direct Loan Program, the funds for your loan come directly from the federal government. Funds for your FFEL will come from a bank, credit union, or other lender that participates in the program. Eligibility rules and loan amounts are identical under both programs, but repayment plans differ somewhat.  Many lenders offer private education loans or alternative loans.  These loans are designed to fill the gap between the cost of attendance and federal aid including federal student loans.  Private or alternative loans are lender-based products and eligibility requirements, interest rates, and benefits will vary per lender.

Parents and students should contact the financial aid administrator at their school of choice or visit their local credit union for additional information, brochures, or legitimate financial aid website addresses. We will post those for you on the Chapter website after the show.   www.AIE.org; www.tgslc.org; www.studentaid.ed.gov; www.fafsa.ed.gov

2. It’s been really difficult to find financing for my education. Why?

Answer
Students should speak to a financial aid representative at their school of choice when ineligible for some type of financial aid.   The financial aid representative will discuss financial aid options at their school.

Students should be able to find the resources to fund their education.  It is critical though, that parents and students understand the requirements, deadlines, and steps of applying for financial aid.  Many federal and state grants including scholarships are awarded on financial need while others are awarded on a first-come basis or by certain priority deadlines set by the school.   Federal student loans which are considered to be the last option in funding an education are awarded to students regardless of income. Students are required to meet academic standards set by the school.

3. Where can I go to get personalized help in finding the right loan to finance my college expenses?

Answer
Parents and students can visit with a financial aid representative at their school of choice to discuss student loan options.   Many local credit unions have on hand student loan experts that can assist members with student loan information and the financial aid process.

4. Several credit unions and other financial institutions used to be on the education lender list at my college. Why did they get out of the education loan business?

Answer
In recent months, many schools have opted to do away with the lender lists and others may now provide a lengthy list that is inclusive of all lenders, local and national, participating in the FFEL Program.
  
Also, many lenders, including local community banks and credit unions, have temporarily suspended their participation in the FFEL Program.  The passage of recent federal legislation has affected our ability to continue to originate these loans.   We are certainly hopeful that the new congress will focus on the challenges lenders face in their willingness to be part of this program.

Deposits/NCUA Insurance Fund

1. I don’t see any FDIC signs at my credit union. Are my accounts at credit unions insured?

Answer
You will not see FDIC signs at any credit union.  The Federal Deposit Insurance Corporation (FDIC) administers the Bank Insurance Fund and their insurance is for commercial banks and savings institutions – often called savings and loan associations or savings banks.  Credit Unions are insured by a separate fund.

2. Can you explain what the NCUA is and how credit union members are covered through the NCUSIF?

Answer
Credit unions are insured by the National Credit Union Administration (NCUA) which administers the National Credit Union Share Insurance Fund.(NCUSIF).  The level of coverage provided members of credit unions is identical to the coverage provided bank customers through the FDIC, currently $250,000.

3. Can I get more than $250,000 coverage on my deposit accounts within one credit union and if so how?

Answer
Credit union members can structure their account’s ownership to effectively increase the amount of insurance they have.  There are four types of accounts – Individual Accounts, Joint Accounts, Trust Accounts and IRA Accounts.

If you have an account in your name only, all of the sub-share accounts within that account are insured up to $250,000.

If you and a friend have a joint account each of you are insured up to $250,000 each for all the sub-shares in the account, or in my example you would have $500,000 in share insurance coverage for the account.

So you and a friend could each have individual accounts insured up to $250,000 each, or $500,000 total, plus a joint account with $250,000 insurance each for total insurance of $1,000,000.

Let’s say that you added your mother to your individual account as a beneficiary.  That is to say that if you were to die, the money in the account would pass to her as your beneficiary.  This is an example of a Trust Account.  You would get an additional $250,000 for each beneficiary added to your account.  Continuing with my example, this would increase the total insurance coverage from $1,000,000 to $1,250,000 for all the accounts we have discussed.

IRAs (Individual Retirement Accounts) are insured separately.  If you had $250,000 in an IRA, it would be insured, too.  With the accounts we have described before, you have up to $1,500,000 in total insurance coverage on the accounts.

4. How do I know if my accounts are protected?

Answer
Look for the NCUA signs displayed prominently wherever deposits are accepted.  You can also visit with a representative at your credit union who will review your account styling to ensure all your funds are insured.

5. What is not insured by NCUSIF?

Answer
The NCUSIF does not insure the money individuals invest in stocks, bonds, municipal bonds or other securities such as mutual funds (including money market mutual funds and mutual funds that invest in stocks, bonds and other securities; annuities or insurance products such as automobile and life insurance; even if these products were purchased at a federally insured credit union or through an affiliated broker; dealer/insurance agent that is offering these products on behalf of a federally insured credit union.  Also, The NCUSIF does not insure US Treasury bills, bonds or notes, but these are backed by the full faith and credit of the US Government.  It does not cover valuables in safe deposit boxes.

6. Are Money Market accounts federally insured? 

Answer
Yes – Money Market Accounts opened at your credit union are shares and are eligible for the coverage through NCUSIF.  These are not the same as money market mutual funds offered through an affiliated broker, dealer/or insurance agent which are not insured through NCUSIF.

7. What if I open a 2-year CD today?  Will the $250,000 insurance coverage extend to the end of the term?

Answer
Beginning October 3, 2008, Congress initiated a temporary increase on deposit insurance to at least $250,000 through December 2009.  Before the end of 2009, congress is expected to re-address the issue and decide whether to make the $250,000 limit permanent or to change it to another amount.  However, at this time we cannot assure you that you will have more than $100,000 in NCUA or FDIC insurance after December ‘09.

8. What is share insurance coverage after a member dies?

Answer
The NCUA will insure a deceased member’s accounts as if he or she were still alive for six months after a member owner’s death.  During this “grace period” the insurance coverage of the member owner’s accounts will not change unless the accounts are restructured by those authorized to do so.   

The grace period does not extend to the beneficiaries listed on revocable trust accounts also know as payable on death or in trust for accounts.

9. Can insurance coverage be increased by dividing my deposits into several different accounts at the same federally insured credit union?

Answer
Yes you may.  As in my earlier example, you can structure the ownership of your accounts to have much greater insurance than just the $250,000.

Business Lending

1. Do credit unions provide business loans or business accounts?

Answer
Most credit unions provide both business loans and business deposit accounts.

2. I lost my job and want to start my own business. What kinds of things do I need to do so I can be approved for a business loan?

Answer
Develop a comprehensive and reasonable business plan; ensure that your personal credit report is in satisfactory condition; plan to provide for initial debt-free capital to inject into a new business; seek as much information as possible on the industry in which your business will operate or the franchise that you are considering; and seek professional guidance, which is available without cost, on how to start and operate your own business.

3. I’ve heard that applying for a Small Business Administration loan is a long process. Are there advantages to this type of loan?

Answer
The process runs for about the same time period as a conventional business loan request since many credit unions are SBA Preferred Lenders, which means that credit decisions on SBA loan requests can be made by the credit unions.  The amount and type of information needed to make a credit decision is basically identical. Advantages to an SBA loan are centered on the SBA guarantee (50-90%) and the loan term (up to 25 years), depending on the type and purpose of the loan request.  Also, with an SBA loan, credit unions are able to assist more members to a greater extent, with less collateral.  This includes start-up businesses.

4. What are some resources to help me prepare a business plan so I can get a business loan?

Answer
There are several sources, both government and community sponsored, that are available to assist in the planning and preparation of a business plan.  One excellent source is the Small Business Development Center (SBDC).  Also, there are non-profit microlenders, such as ACCION Texas, that provide technical assistance and loans to small businesses that might not be otherwise bankable.

5. I’m starting a business on the side but still have a full-time job. Can I run my business transactions through my personal checking account to save some money?

Answer
Generally speaking, it is highly recommended that you run your business transactions through a separate business account.   Not only will this help with accounting issues, but there are tax implications to consider.

Investment Advisor

1. I have $10,000 in my savings account that I need to invest. With the stock market in such a down cycle what other options do I have?

Answer
In order to answer your question specifically to you and your individual situation I would require quite a bit more information from you.  For example: Have you already established an emergency account?  Have you already established an intermediate term account?  What purpose are you investing for?  What time frame do you have before you intend to use the funds?  What is your individual risk tolerance for the money to be invested? What are your individual liquidity needs? Etc...

But for illustrative purposes let’s take an example.  Let’s assume you already have established the emergency savings account that will cover your bills for 3 to 6 months but have not yet established an intermediate term account.  The purpose of the intermediate term account, which is generally something you want available to you every 6 months to 1 year, is to be able to replace your emergency money if you end up having to use your emergency account dollars to cover monthly bills in your checking account. A good place to invest your intermediate term money would be in a share certificate (CD) whose term is between 6 months and 1 year.  Because this money is in a share certificate (CD) your money will earn a pre-determined set rate that is generally higher than your savings account rate and the principal and interest will be available to you at the share certificate’s maturity, at which point you can use part or all of the funds to replace your emergency account funds should you need to.

But remember, you should be sure and sit down one on one with a Financial Advisor to discuss your individual investment time frame, risk tolerance for the money to be invested, liquidity needs, and goals before you invest.

2. I hear pundits talk about the natural “correction” that the market is making. What does that mean and how does that affect my decisions, especially regarding my 401K?

Answer
When pundits talk generically about their belief that the market is making a natural “correction” they are talking in general terms about how the markets historically have been cyclical in nature.  In other words, through history, the market has always gone both up and down and continues to do so.  In terms of how this affects your investment decisions, especially your 401k, is again a very personal matter given your individual risk tolerances, time before retirement, and other investment vehicles you already have in place to help supplement your retirement in addition to your 401k.  In generic terms, the longer time frame you have before retirement, the more aggressive you can afford to be, the closer you are to retirement the more conservative you need to be.  When you are 20+ years from retirement you can afford to wait for the market to eventually cycle back up, in fact, the current downturn could very well be a great opportunity for you to increase your contributions and in theory buy more shares while the market is lower. If you are 5 years or less from retirement you may not have that same luxury.

3. What is the range of investments available at credit unions in general?

Answer
Credit unions in general offer a full range of both deposit products and investment products, through their affiliation with their specific broker dealer to our members.  From share savings accounts, money market savings accounts, share certificates to managed money accounts, mutual funds, fixed, indexed and variable annuity accounts and wealth transfer vehicles.

4. Do credit unions offer strictly proprietary investment products?

Answer
No. Our share savings accounts, and share certificates are our own, but credit unions in general, do not have any proprietary managed money accounts, mutual funds, fixed, indexed and variable annuity accounts or wealth transfer vehicles.  This means through the credit unions affiliation with their broker dealer we are able to offer a much larger range of products that offer various types of investments allowing us a large pool to choose from when we are aligning our member’s individual goals, time frames, liquidity needs, and risk tolerances with the product or products that give them the best chance to reach their goals with the appropriate corresponding amount of risk.

5. Do you see any investment trends developing?

Answer
Credit union members are generally fairly conservative in nature.  With all that has been happening in the markets and with the economy in general, we find our members bringing even more of their assets to the credit union to add to and complement the other deposit and or investment products they already have with us.

Some members are looking for additional, more conservative investments and some members are looking at the current market downturn as a potential good opportunity to get some more money into the market while some prices look very attractive.  We anticipate these trends to continue.

Legal Expert

1. Can you explain what bankruptcy is and how I will be affected if I file for bankruptcy?

Answer
Bankruptcy is a serious matter that most likely will affect you for at least a decade.

• Your credit report will reflect your bankruptcy for 10 years. 
• Thus affecting your ability to obtain credit and increasing the amount that credit will cost you. 
• Additionally, if you are married and have any joint debts with your non-bankrupt spouse, your bankruptcy will appear on your spouse's credit report and it will affect his/her credit score

If you believe you cannot meet your financial obligations, contact your lenders immediately and discuss your situation. 

• Communication is the key. 
• There are many things you creditor may be able to do for you to help you through a rough patch—such as temporarily reducing your interest rate or principal payments or refinancing your loan to reduce your payments all together.

If this will not work and you believe you need to file bankruptcy, please see a qualified bankruptcy attorney for counseling.

Approximately half of all people filing for bankruptcy do so as a result of medical bills.  The next most common causes of bankruptcy are the loss of a job or divorce (since incomes are no longer combined and household expenses are nearly doubled as a result of two separate residences).

“Bankrupt” means filing a petition in a federal court asking for protection from creditors via the bankruptcy laws.

• A single petition may cover an individual or married couple.

The instant you file for bankruptcy, the court assumes legal control of your assets and halts all collection efforts.

Shortly after the filing, a court-appointed trustee convenes a meeting to inventory your assets and debts and to determine which assets are exempt from seizure.

In Chapter 7 the trustee liquidates all nonexempt assets to pay your creditors.

In Chapter 13 you will have a repayment plan, which extends for up to five years, and you may retain property so long as you stay current with repayments.

Under both 7 and 13, taxes, student loans, alimony, and child support remain payable in full, and you must make payments on all secured loans (such as home mortgages and car loans) or forfeit the collateral. 

2. What are POD accounts and trusts and how do they affect my insurance coverage?

Answer
One way to increase your share insurance coverage is to appoint beneficiaries under a POD (Payable On Death) Account or a trust.

POD accounts and trusts are a way to pass money upon your death to a named beneficiary without having to go through probate court proceedings.  A POD account is a simple designation by you, on your signature card, instructing the credit union to pay your account to the named beneficiaries upon your death.

Trusts are more complex and I would advise you to see a qualified attorney if you wish to establish a trust.  In any trust, you have 3 classes of persons:

1. The grantor—this is the person who puts money into the trust
2. The trustee—this is the person who administers the trust like an employee
3. The beneficiary—this is the person who receives the benefit of the money placed in the trust

The most common types of personal trusts are revocable trusts.  A revocable trust is much like a POD account—it is basically a statement by you of how you want your funds distributed upon your death.  In the case of a trust, however, the credit union will rely on the trustee to make distributions of your funds to your beneficiaries.  The "owner" of a revocable trust for insurance purposes is the grantor.

POD and revocable trust accounts are insured up to $250,000 for each qualifying beneficiary of an owner of the account.  A qualifying beneficiary is either a human being or a charity or non-profit organization recognized by the IRS.

Note:  The information provided during the Great Day SA broadcast and on this website is for educational purposes only. For specific information, please contact your financial institution.”

For more information on Student Loans, visit:  www.AIE.org; www.tgslc.org; www.studentaid.ed.gov; www.fafsa.ed.gov)