ALEXANDRIA, Va. – The continued deterioration of the mortgage market, as foreclosures and delinquencies rise, is expected to cause increasing losses on billions of dollars of mortgage-backed securities being held by corporate credit unions, according to NCUA.
The prediction comes as NCUA revealed it has pumped almost $20 billion into U.S. Central FCU and WesCorp FCU over the last six months to keep the two corporate failures afloat.
Scott Hunt, director of NCUA’s Office of Corporate CUs, said yesterday that current estimates are that U.S. Central will have a loss of $1.7 billion and WesCorp a loss of $5.7 billion on their mortgage securities, but agency officials expect those numbers to be even higher because of the ongoing deterioration in the market. "It is likely that those estimates will grow," Hunt said during the agency’s webinar on the corporate bailout program.
The corporate office chief cited several factors for projections that increasing mortgage securities will fail. Those are: the ongoing rise in foreclosures; growing delinquencies among payment option ARMs; and the growth in mortgage refinancings. All are factors that affect the mortgage-backed securities held by corporates, said Hunt.
The further deterioration of the primary mortgage market is expected to take an additional toll on those corporates that have large holdings of mortgage-backed securities, Hunt explained. Those corporates, as are all corporates, are already under a strict capital restoration plan, he noted.
The NCUA executive said they believe they had successfully stemmed a "silent run" on the corporates that occurred in 2008 by pumping almost $20 billion into the system. That included a $10 billion emergency loan from the National CU Share Insurance Fund into U.S. Central and WesCorp; $8.2 billion of so-called CU Systems Investment Program, or SIP notes; a $1 billion capital note from NCUSIF into U.S. Central; and $450 million of so-called CU HARP funds through the Central Liquidity Facility.
In addition, guarantees on all corporate deposits helped boost confidence in the system, said Hunt. "Members see the need to support the corporate network," he said.
