WASHINGTON — Credit union leaders are lobbying Congress to ensure the massive government bailout of the mortgage industry includes the nation's corporate credit unions, which are dealing with huge portfolios of underwater mortgage-backed securities.
At stake is the health of the corporate credit union network, which has accrued $10 billion of unrealized losses on its mortgage-backed securities — more than the capital of the entire corporate network. Almost every corporate credit union is holding underwater mortgage securities, and more losses are expected to come to light over the next week as the credit unions report their August financial data.
"We're working to make sure that credit unions are entitled to everything the banks get," said Brad Miller, a Washington lobbyist for the Association of Corporate Credit Unions.
The Bush administration's proposal to buy as much as $700 billion of illiquid mortgage assets from financial institutions specifically names credit unions as eligible parties. And industry lobbyists said they were confident Monday that the bailout proposal would cover corporate ones.
Industry experts are worried that expanding losses for the corporate credit unions could cause a run and restrict their ability to provide liquidity to the credit union system, their main function.
"Corporate credit unions were chartered, in part, to provide liquidity. Have you ever heard of a liquidity provider that has no liquidity?" asked Charles Felker, managing director for the credit union bond house First Empire Securities Inc., who worked for many years at the industry's federal regulator, the National Credit Union Administration.
The biggest losses are accruing at a handful of the largest corporate credit unions, including U.S. Central Federal Credit Union, with unrealized losses of $2.8 billion; WesCorp Federal Credit Union, with losses of $1.4 billion; Members United Corporate Federal Credit Union, with losses of $1.2 billion; and Southwest Corporate Federal Credit Union, with losses of $1 billion.
Those losses are expected to be significantly higher now, because the markets have deteriorated since then.
Corporate credit unions are bankers banks for the 8,000 regular credit unions and manage as much as $100 billion. U.S. Central, which is the bankers bank for 35 corporates, manages more than $40 billion for the credit union system.
Mr. Felker noted that many of the Triple A-rated mortgage securities held by the credit unions were downgraded after Lehman Brothers' bankruptcy filing.
"The corporates would not be able to use the impaired mortgage-backed securities to fund withdrawals," Mr. Felker said. "To raise money, they would have to realize those losses.
"If we see a situation where there's a run on the corporates, NCUA may have to put the system into conservatorship," he said. "It's not out of the realm of possibility."
