NEW YORK (TheStreet) — Over its long history, Montauk Credit Union built a healthy business providing taxi medallion business loans. "Over the past 40 years [Montauk] has never suffered a loss in a taxi medallion related loan and is proud to state we have never written off a single penny," read a March 12, 2014 letter from Montauk CEO Louis Jimenez petitioning NCUA to relax proposed risk-based capital requirements.
Roughly 18 months after those words were written, the New York State Department of Financial Services seized Montauk because of "unsafe and unsound conditions" related to deterioration in the taxi medallion loan portfolio and management’s response.
The rise of Uber and other ride-sharing options, and the pain for taxi medallions has been well chronicled. But many lenders and industry observers have not recognized the permanence of the crisis or understood the impact. The riskiness of the lender response has derived from these oversights.
Montauk, the lender on an inordinate number of Chicago taxi medallion foreclosures, has arguably been the most reckless perpetrator of aggressive practices in response to taxi medallion loan quality deterioration.
But it has had company. In addition to liberally restructuring loans as delinquencies spiked (see chart below), taxi medallion lenders refused credit to buyers at collapsed street asking prices. The absence of credit significantly contributed to freezing of historically liquid markets. At the same time, lenders engineered sales at prices 60% to 90% above the street asking prices by providing 100% financing. In turn, these inflated prices were used as the basis for valuing collateral on entire taxi medallion loan portfolios and marking-to-market owned medallions by other credit unions (Montauk, Melrose, Progressive and LOMTO) and publicly traded medallion lenders (Signature Bank (SBNY – Get Report) and Medallion Financial (TAXI – Get Report) ).
Credit Union Medallion Loan Stress Trend
Our editors found this article on this site using Google and regenerated it for our readers.