WASHINGTON – Congressional leaders came to agreement last night on the Bush administration’s massive bailout package which would have the U.S. Treasury buy up as much as $700 billion in toxic mortgages and mortgage securities, and sent the proposal on for a vote by the House and the Senate as soon as today.
After start-and-stop negotiations, Republicans and Democrats agreed on a package that looks much like the one introduced last week by President Bush, with a few additions. They would: curb "golden parachutes" at financial institutions participating in the plan; ensure the government gets a stake in the companies it helps; phase in the huge $700 billion in funds, starting with $250 billion; and provide for strict oversight by Congress.
The proposal does not include a provision opposed by credit unions that would allow homeowners to ask the bankruptcy courts to restructure their mortgages, according to lobbyists for both CUNA and NAFCU.
Credit union executives were expressing doubts on a credit union role, even as they conceded the bailout will benefit them by the effects it will have on the overall mortgage markets–which make up half the credit union business these days.
"I disagree with the action by our trade associations to put as at the front of the line (for aid)," said Craig Israel, president of First South CU. "I understand that some credit unions and corporates
may need some help, but if credit unions are listed as one of the target entities that asked for assistance, I’m not sure that plays well with the laymen. Right now people don’t associate us with this mess, and we’re seeing an in-flow of deposits because people see us as a safehaven."
"It’s like dying from second hand smoke," asserted Bucky Sebastian, president of GTE FCU. "You never smoked a day in your life, but you end up with lung cancer from the second hand smoke. Well, we didn’t do any of these things, but we are inhaling second hand smoke."
"This plan is being brought to you by the same people who brought you the war in Iraq...so we should all be very skeptical of any plan from this same group of people," said Sebastian, whose credit union reported a $19.2 million mid-year loss from real estate exposure in the hard-hit Florida Gulf Coast.
"The alternatives of not doing the bailout plan are far worse than doing the plan," said Larry Tobin, president of Fairwinds CU, an Orlando, Fla., credit union with a $6.5 million mid-year loss.
"It allows us to move on," Tobin told The Credit Union Journal. "We already had plans to sell some mortgages and commercial loans, but the government coming will make more private firms
willing to buy, plus we'll be able to turn to the [GSEs], as well."
"I don't think the plan to spend $700 billion to buy those mortgage-backed securities that are no longer worth anything will impact any credit unions directly, but there will be a significant indirect benefit," said William DeMare, president of Bay Gulf CU. "By buying those securities, the federal government will be putting billionsif not trillionsof dollars back into the economy.
"The quicker we can see the increase in liquidity, the quicker the downturn will start to level off and turnaround," said DeMare, who Tampa, Fla., credit union had a $2 million loss for the first half. "That liquidity will allow [lenders] to make mortgages and other loans, and when a homeowner gets that loan, he maybe turns around and hires someone to renovate the kitchen, and that means more people working."
