ALEXANDRIA, Va.-NCUA last week released a report by its Office of Inspector General projecting final losses on the failure of WesCorp FCU of about $5 billion.
The Material Loss Review, required for all credit union failures costing losses over $10 million, will attribute the failure of the one-time $34-billion corporate to the management's frantic efforts to continue increasing returns to its member credit unions by taking on mounting levels of risk, according to William DeSarno, the inspector general for NCUA.
"It was just incredible; they just kept on seeking higher returns," said DeSarno, who said the final losses could be even higher than the $5-billion estimate. The 40-page report shows in detail the subprime mortgage-backed securities WesCorp's management continued to buy, even as the mortgage markets began to falter. The chase for higher returns necessitated even riskier investments, DeSarno told CU Journal.
"When we really looked at it we saw what was behind some of those (MBS) and it was real garbage. It was pitiful."
The report shows WesCorp purchasing more than $600-million worth of collateralized debt obligations constructed of subprime mortgages that were virtually worthless less than year after purchase, and billions of dollars of investments in MBS comprised of subprime and Alt-A mortgages.
The WesCorp report is the second material loss review conducted on a corporate failure, following last month's report on U.S. Central FCU, projected to cost credit unions as much as $7 billion. That report found that NCUA, which had an on-site examiner housed at U.S. Central, ignored many of the red flags that the one-time $52-billion corporate was failing.
Additional loss reviews are being conducted on the three latest corporate failures, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU, according to DeSarno.
