Government, military budget cuts could affect Navy Federal Credit Union and its members


Navy Federal Credit Union. (Rick McCleary)
February 24, 2013

Cutler Dawson has seen this all before: Fears of widespread government budget cuts, military pullbacks and furloughs for federal workers.

“It’s nothing new,” said Dawson, the 65-year-old president and chief executive of Navy Federal Credit Union. “In the life of Navy Federal, we’ve seen that happen over and over again.”

The Vienna-based credit union — the largest in the world — has grown rapidly in recent years, having added 1 million members since 2011. During that time, assets have grown 19 percent to $52.5 billion.

Now, as the country faces another round of budget cuts and the winding down of two wars, Dawson and his team have begun working a strategy that would help its 4 million members — including about 80,000 who work for the Defense Department — stay afloat should widespread furloughs from sequestration take place.

“We’re working through things on how we can help our members if [sequestration] happens,” he said, adding that the credit union is planning to provide bridge loans to members who need help making-do with less pay.

In 2011, amid worries of a government shutdown, Navy Federal offered to cover the difference in wages for members who had direct deposit, should the government stop paying its workers.

The government narrowly avoided a shutdown, but Dawson and other officials say it was an important lesson in figuring out how to help members who are often on the front lines of federal spending cuts.

“Generally speaking, we can work it out,” said Jack Gaffney, executive vice president of lending at Navy Federal.“Whether it’s extending the duration of a loan or getting to a monthly payment plan that works for [members], our goal is to help tide people over.”

Broadening its membership

In 2008, Navy Federal began accepting members from all military branches, including the Army and Air Force, as well as the Defense Department.

“Over the last 15, 20 years we did more and more things in a joint manner [in the military],” said Dawson, who retired after 34 years in the Navy. “All the services do everything, so why shouldn’t we serve all the different members?”

The widening of its membership, coupled with a recovering economy and increased demand for mortgages and car loans, has helped fuel the credit union’s recent growth.

In 2012, Navy Federal wrote more than $10 billion in mortgage loans, up from $6 billion a year earlier. Car loans jumped 46 percent to $4.8 billion.

The credit union is one of few financial institutions that continue to grant mortgage loans to borrowers without requiring a down payment. About 11 percent of Navy Federal’s mortgages fall into that category, Gaffney said. (Navy Federal has a loan delinquency rate of 1.08 percent.)

“Our members have good jobs, they work hard. We don’t want those people not being able to have a house for their families,” he said.

The banking needs of military personnel, many of whom are stationed overseas and away from their spouses, are often nuanced, Gaffney said.

“Often they’ll be trying to coordinate financial accounts from afar,” he said. “We’ll work with their spouses to make large purchases.”

Nearly two-thirds of the credit union’s loan applications come in through its Web site or call center.

There are other wrinkles, too.

“For example, let’s say you get a car loan and then you’re shipped off to Europe,” Dawson said. “Other lenders will go ‘You can’t take that car out of this country. We have a lien on it.’ We’ll say, ‘Of course you can take the car out of the country.’ ”

During the economic downturn, loan demand dwindled and losses increased. The credit union had to shut down its real estate settlement division (although Dawson points out that all 90 employees were placed in other jobs; the credit union has never laid off an employee in its 80-year history).

“It affected our members,” Dawson said of the economic downturn. “We’re not different from anyone else. Our losses went up, but we made every effort to work with our members.”

In 2013, the credit union plans to hire 1,000 people in Northern Virginia, adding to its roster of 10,000 employees worldwide. New branches in Virginia Beach and Annapolis are in the works.

Dawson said it’s not entirely clear how a possible sequestration would trickle down to the credit union’s deposits or loan demand. But that’s not the point, he said.

“The Great Recession had many downsides, but one of the upsides was that folks became more aware of the financial environment around them,” he said. “They became more aware of what they did with their money — and that’s been very good for us.”

Abha Bhattarai covers local banking, retail and hospitality for The Washington Post’s Capital Business section. She has written for The New York Times, The Wall Street Journal, Reuters and the St. Petersburg (Fla.) Times.
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