WASHINGTON-With increasing portions of the $700-billion bailout package being earmarked for banks, credit unions are looking to develop a rescue plan of their own.
CUNA called on NCUA to create its own "shadow" asset relief program that would purchase distressed mortgage loans and mortgage-backed securities from credit unions, including corporate credit unions, which are sitting on more than $10 billion of losses on mortgage securities. The program would be managed by the National CU Share Insurance Fund, which already provides emergency loans to troubled CUs.
Separately, a group calling itself the Credit Union Housing Roundtable, comprised of credit unions, asked NCUA last week to provide it with $1 billion through the Central Liquidity Facility to assist credit unions with troubled mortgage loans. The funds would be used to help credit unions make loan modifications for first- and second-lien borrowers suffering economic hardship.
The initiatives come as the Treasury is committing increasing sums of the $700-billion bailout to banks, leaving less for credit unions and other affected financial institutions. Last month the Treasury announced it is using $125 billion of the bailout funds to infuse capital into the nation's nine largest banks. And last week the Treasury announced another 23 banks will get as much as $35 billion of capital infusions, in exchange for equity stakes granted to the government. So far, no money has been set aside to specifically aid credit unions.
"The consensus is that credit unions should not be excluded from the program. Whether credit unions should actually use it is much more complex and there is not a consensus on that," said Eric Richard, general counsel for CUNA, who is working with the Treasury on the program.
But CUNA has been devising its own assistance program for credit unions. In a meeting last month with CEOs from the largest credit unions CUNA officials laid out several proposals. They would use the NCUSIF as the main vehicle for the program.
Under one scenario, credit unions would fund their own program by a special assessment on their 1% NCUSIF deposit. That way, the plan would be credit union-financed and credit unions could continue to assert they have never been the beneficiaries of a taxpayer-funded bailout, helping to bolster their argument for continuation of the tax exemption.
Under another scenario, the NCUSIF could accept funds under the Treasury's program and direct them to needy credit unions.
The first option is seen as more palatable for credit unions. A credit union-funded program, said CUNA President Dan Mica in a letter to NCUA Chairman Michael Fryzel, that is "targeted specifically to credit union needs would provide credit unions with an outlet that involves no taxpayer funds but, rather, is self-funded with the system. By relying on the National Credit Union Share Insurance Fund to operate such a program, NCUA can help credit unions solve their own problems in a manner that fairly distributes costs across the credit union system without using Treasury funds."
CUNA officials estimate the plan would require around $200 million to fund. But several industry observers suggest the figure would be closer to $2 billion, considering the needs of the corporates.
Under the program proposed by the Housing Roundtable NCUA would confirm the availability and probable rate of fixed rate, three-year term borrowing of $1 billion from the CLF. The program would be overseen by a steering committee comprised of representatives form NCUA, as well as major participants in the roundtable, including BECU, Bethpage FCU, Wright-Patt CU, Spacecoast CU and WesCorp FCU.
NCUA Chairman Michael Fryzel said last week the agency is focusing on the Treasury plan and has not asked the Treasury to expand its capital infusion to credit unions. "While NCUA has been involved in the consultative process for the Troubled Asset Relief Program with the Department of Treasury, we are not making recommendations for any additional credit union participation beyond the one set forth in statute," Fyzel said.
NAFCU has not endorsed any of the proposals for a credit union-specific plan, according to Fred Becker, its president. Becker said his group is keeping its focus on ensuring that credit unions get to fully participate in the sale of troubled mortgage assets sales to the Treasury. NAFCU is also concerned that some banks may be using the cash provided by the Treasury, not to make new loans, but to acquire other banks, as PNC did this week in its deal to buy National City Bank.
