By Ray Birch
NEW YORK—When NCUA eventually sells its portfolio of medallion loans, will the medallion crisis facing credit unions be over?
Sources are split on that answer, with one expert saying the worst has passed but some CUs will still experience issues—even with performing medallion loans—in having to write down the value of that collateral.
Another analyst, however, asserts the industry faces a big problem.
As CUToday.info has reported, NCUA is looking to sell its portfolio of more than 3,500 medallion loans, including some from Chicago, valued at an estimated $1.5 billion. NCUA came to own the medallions following the liquidation of a half-dozen taxi medallion-lending credit unions that failed at a cost of nearly three-quarters-of-a-billion-dollars to the National Credit Union Share Insurance Fund.
Keith Leggett, the former senior vice president and senior economist at the ABA, believes the medallion crisis is winding down for credit unions but insists the industry still faces headwinds.
“I believe there is some trepidation within the industry that credit unions that have medallion loans for which they have not already written down the value will be forced by examiners to do so,” related Leggett.
What Leggett contends will force the move is the eventual sale by NCUA of the portfolio of medallion loans, which is expected to set an even lower price for the collateral.
“Once these loans sell there will be a benchmark for price,” said Leggett. “The examiners are going to say, ‘This is the value of your medallion loans.’ The examiners are going to come into those credit unions that have not fairly written down the value of their medallion loans and say you’re not fairly valuing these loans.”
Many Are Too Optimistic
What had been happening at many CUs, suggested Leggett, is credit unions have been too optimistic about medallions regaining some of their value.
Keith Leggett
“When medallions were selling for $300,000, credit unions were saying they were worth possibly $500,000,” said Leggett. “They were always counting on it being a greater value.”
When CUs across the country—many of which invested in medallion loans through participations—are forced to write down this collateral, their futures will be affected, suggested Leggett.
“I don’t think any credit union has the exposure for this to take them down, but there is enough exposure to hamper operations,” Leggett contended.
Leggett believes NCUA setting aside approximately $800 million in reserves for medallion losses is adequate.
“When I first began looking at this issue I thought credit union losses would be somewhere in the neighborhood of $700 million to $800 million,” said Leggett. “But things could always go further south, especially if you're required to do more write-downs, even among medallion loans that are performing.”
Problem Getting Worse?
A recent report from the Daily News suggests the medallion problem could worsen. The report reveals medallion foreclosures continue to rise to record levels as Yellow Taxi rides continue to shrink in number every year as ride share trips by consumers climb.
Since 2012, Yellow Taxi rides in the Big Apple have fallen each year, dropping from 487,929 to 231,592 in 2019, the Daily News reported.
In 2016, lenders foreclosed on 23 medallions in New York City. That number grew to 46 in 2017 and skyrocketed to 510 in 2019.
That steady decline in medallion values and Yellow Taxi ride numbers has Michael Moebs, economist and CEO at Moebs $ervices, concerned credit unions’ problems remain significant nationwide. He pointed to data show there is still a significant number of medallion loans among CUs backed by very weak collateral.
“This is a national crisis not just limited to New York City,” said Moebs, referring to data from his company’s new Taxi Medallion Study. “There are about 200,000 medallion drivers in the U.S. and 800,000 non-medallion drivers. We estimate there is $12.9 billion in medallion loans with very little collateral security nationwide.”
What the Data Show
Moebs said data show that in 2012 taxi medallions numbers include 13,500 in New York City, 7,000 in Chicago and 1,500 in San Francisco, for a total of 22,000 medallions.
“The value of those 22,000 medallions has fallen from $8.7 billion to $2.2 billion. More importantly the value of the $6.5 billion in loans supporting medallions in New York City and Chicago is extremely small,” Moebs said.
Moebs noted, as CUToday.info has reported, many medallion owners are just walking away from their loans like homeowners walked away from their mortgages during the Great Recession.
“This problem credit unions have faced—as they have made the large majority of medallion loans across the country, could get bigger based on our data,” asserted Moebs, noting NCUA’s medallion portfolio represents only a small percentage of medallions nationwide. “The credit unions that originated these medallion loans participated the loans to hundreds of CUs around the nation behind the notion that medallion loans were as good as gold.”
Bottomed Out?
But Leggett believes medallion values have bottomed out and that issues facing credit unions will be limited going forward.
“I don’t think NCUA wants to unload their medallion portfolio because they fear a greater drop in value. I just think they are just not in the business of managing and servicing loan portfolios and want to get out of that business,” Leggett said. “That's my guess. Also, they likely want to get rid of the loans in the event a lawsuit comes down, for example from the New York Attorney General. NCUA does not want to be like Bank of America, when it took over the Countrywide MBS portfolio.”
‘No One Wants Horses’
But Moebs contends that ultimately medallion prices will just continue to fall, despite efforts in New York City to shore up the medallion market and assist medallion holders.
“Medallion loans, essentially, have no value,” contended Moebs. “Go into the market and see how many medallions have sold. We found none for quite some time. Buying a medallion in the past three years is like buying a horse-drawn firefighter’s wagon. In this day and age firefighters use diesel trucks. The only thing left of the firefighters’ wagon are the horses and no one wants horses. Medallions are horses. Uber and Lyft have seen to this. Municipalities can make money by taxing the taxi meters through an app. The business of medallions is dead.”
NAFCU Concerned About Risk
NAFCU recently sent a letter to NCUA calling the agency’s portfolio of taxi medallion loans a “risk” to credit unions. The trade association said it supports an expeditious sale of the portfolio.
Michael Moebs
"We note that such a large amount of assets under active management by the NCUA's Asset Management and Assistance Center (AMAC) is without recent precedent," NAFCU stated in its letter. "…The SIF Committee (NAFCU's Share Insurance, Liquidity and Development Fund Oversight Committee) is concerned that the unusually large asset portfolio strains agency resources and poses a risk to the credit union community so long as it is under management by AMAC."
NCUA Response
Asked by CUToday.info why it wants to sell its medallion portfolio now, and if there are any fears of a greater decline in medallion prices, NCUA responded in an email: “The NCUA is unable to comment on any specifics about our resolution strategy or conditions in the taxi medallion market. However, we are confident that we have planned accordingly and can resolve this situation in a manner that is sensitive to the needs of medallion holders and their families and that meets our obligations to minimize potential losses to the Share Insurance Fund.”