WASHINGTON – The corporate credit unions, which are facing growing losses on their mortgage backed securities, are asking regulators to amend the rules for fair value accounting to take into consideration the unprecedented devaluation of the mortgage markets, in order to ease huge losses the corporates’ books.
The corporate network, especially a handful of the largest corporates, are sitting on more than $10 billion of losses on their mortgage securities under the current rules for fair value accounting, known as mark-to-market.
The corporates have asked the Securities and Exchange Commission, which sets the rules for most financial entities, to consider allowing entities to report distressed assets at "realizable value," which instead of using the current abysmal market valuations, would allow corporates to take into consideration expected value of an asset, based on principle and interest payments and whether the corporate has an intent and ability to hold the asset to maturity.
"This change would provide consistency to the different captions on the balance sheet and improve comparability among reporting entities," said Brad Miller, executive director of the Association of Corporate CUs, in a letter to the SEC. "Recognition of distressed values in financial statements that are based on fire-sale prices distorts the economic reality of an entity’s financial condition because these prices will not be realized by institutions that have an intent and ability to hold securities to recovery or maturity."
While the SEC does not set accounting rules for credit unions, NCUA typically follows the lead of the securities regulator in setting its accounting rules for credit unions. The SEC is reviewing whether to ease its mark-to-market accounting rules for publicly held corporations, including banks.
Corporate credit unions have reported increasing mark-to-market losses on their securities in recent weeks. U.S. Central FCU, has reported the largest by far, a $6 billion gap between the book value of its assets and the market value. Also, Members United Corporate FCU reported almost $1.3 billion in market value losses; and Corporate One FCU $266 million. Earlier, WesCorp FCU reported a $1.7 billion loss; Southwest Corporate a $1 billion loss; Constitution Corporate FCU a $199 million loss and Southeast Corporate FCU a $114 million loss.
