WASHINGTON – More corporate credit unions reported this week that losses on their mortgage securities continued to increase, just as the Congress was debating a plan to buy distressed mortgage assets.
But the corporates, the segment of the credit union movement most likely to benefit, refused to take a stand on the controversial plan, even as Congress was voting a second time on the proposal.
"We’re staying neutral on it. We’re waiting to see the developments on it," said Brad Miller, Washington lobbyist for the Association of Corporate CUs, who said their main aim is to ensure that credit unions are included in any package.
"We don’t have a formal position. We’re waiting to see what developments are," Miller told The Credit Union Journal yesterday.
Miller said the corporates support the aim of the government plan, to add liquidity and recreate a market for illiquid mortgage securities, but he does not know of any corporate that plans to participate.
U.S. Central FCU, the corporates’ corporate, also declined to take a position on it, saying in a written statement, "U.S. Central can’t comment one way or the other on the government plan because the details are still unknown at this time."
The plan comes as corporates continue to see the deterioration of the vast mortgage securities holdings, with the corporates reporting as much as $10 billion in unrealized losses at August 31.
This week, two more corporates reported that losses grew in August; with Connecticut’s Constitution Corporate FCU reporting that unrealized losses on its portfolio widened to $199.2 million at Aug. 31 from $153.5 million at June 30; and Southeast Corporate FCU reporting its losses increased to $113.9 million, from $105 million.
Last week, U.S. Central reported losses increased to $3.1 billion; WesCorp FCU reported an increase to $1.7 billion; Members United Corporate FCU reported its unrealized losses rose to $1.2 billion; Southwest Corporate FCU reported almost $1 billion in losses;Corporate One FCU $275 million in losses and Corporate Central CU, the $2 billion Wisconsin corporate reported unrealized losses on its portfolio rose to $5.6 million at August 30, from just $941,000 at July 31.
All of these reports were issued for the end of August and do not take into account the panic that has gripped the mortgage markets over the past three weeks.
Yesterday, Standard & Poor’s placed WesCorp on negative credit watch, meaning the company believes the credit quality of WesCorp’s debt may have deteriorated and there is a possibility the agency will downgrade its credit quality ratings in the next few months. S&P said it took this action, "as a result of our concern that continued deterioration in the housing market has increased the likelihood that WesCorp will face material (other than temporary) write-downs in its portfolio of mortgage-related structured securities."
Jim Hayes, chief financial officer for the $28.4 billion corporate, cited Tuesday’s announcement by the Securities and Exchange Commission and Financial Accounting Standards Board to propose additional interpretative guidance on market value accounting as a good sign for WesCorp. "We anticipate any new clarifications will have a positive impact on S&P’s independent review of our portfolio," noted Hayes.
S&P also put Members United on its credit watch negative yesterday for similar reasons.
The Wall Street rating agency also revised their outlook for Southeast Corporate and Southwest Corporate, to negative from stable.
Miller, the corporates’ Washington lobbyist, said the corporates are not exploring any alternative to the government bailout. "Not that I know of," he said.
He also said neither the corporate network or the Association has taken a position on proposals to suspend market value accounting requirements, which is being championed by the banking lobby.
