MBL Mutual Fund Debuts For CUs

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CUNA Mutual Group plans to introduce a new mutual fund comprised of member business loans to credit unions over the next few weeks.

CUNA Mutual sees the CU Systems Fund, which will be made up of MBLs originated by credit unions, as the beginning of a new secondary market for credit union assets that will expand to include a fund for credit card receivables, one for credit union-originated mortgage loans, one for community development loans, car loans, down the road.

"We see this as a whole new secondary market for credit unions," said Kevin Thompson, vice president for development for CUNA Mutual's financial solutions group.

CUNA Mutual, which has seeded the fund with $25 million, has been out buying member business loans from credit unions and has bought 15 loans totaling $6.5 million, so far, according to Thompson.

They also have commitments to purchase another $6 million worth. Coastal FCU sold CUNA Mutual some of its MBLs to become one of the first participants in the fund. CUNA Mutual plans to begin selling the shares in the fund once they hit the $25 million mark, he said.

Currently, CUNA Mutual, which is partnering on the fund with MEMBERS Development's CU Biz Source CUSO, is doing a road show for credit unions, visiting credit unions to explain the fund and certify their business loan practices for participation.

Participation in the MBL fund was approved earlier this year by NCUA, which sees it as a potential source of new liquidity for credit unions.

Thompson said they plan to go back to the agency in the coming months to ask for approval for a credit card loan fund.

CUNA Mutual also sees the funds as a way to keep credit union assets within the movement, according to Thompson.

This way, CUNA Mutual will only buy credit union loans for the different funds, then sell shares in the credit union-generated loan funds to its credit union clientele.

CUNA Mutual is circulating a private offering document, or prospectus, to potential participants in the fund. The company is not projecting any returns or yields because it is too soon, according to Thompson.

In general, he said, the return can be figured using the average yield on an MBL, minus fees, including the 1% management fee for CUNA Mutual. Using broad MBL yields, the fund could be projected to pay a higher return than the most popular credit union investment options now, like agency securities.

Shares will be sold in the MBL fund at $100 each net asset value.

The fund will not have to be registered with the Securities and Exchange Commission, as are most funds, because it will be privately sold, according to Thompson.

The funds will be aimed more at medium- and large-sized credit unions seeking to diversify their holdings.

"Very small credit unions probably would want to work with this on their balance sheets," said Thompson.

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