ALEXANDRIA, Va. – Growing mortgage foreclosures and unemployment has NCUA expecting losses at corporate credit unions to be higher than the $6 billion originally projected.
“The losses are coming in greater than projected,” Melinda Love, chief examiner for NCUA, said yesterday.
Fourth quarter losses for investments held by all of the corporates came in slightly higher than NCUA had projected based on data provided by PIMCO, $307 million, compared to $302 million. But senior NCUA executives expect the bonds held by the corporates, mostly mortgage-backed securities, to continue to deteriorate as mortgage foreclosures continue to rise and unemployment remains at high levels, said Love. What she called the “shadow foreclosure market” is expected to continue to weigh on such securities, she said. “It’s not likely that the losses are going to come in less than what is projected now,” she told Credit Union Journal.
The NCUA chief examiner declined to give an updated loss estimate on the corporate losses, saying the figures have not yet been shared with the NCUA Board. But several independent observers have projected losses on the corporates to be as high as $10 billion.
The growing loss projections are part of NCUA’s review of a plan to resolve as much as $50 billion in troubled assets held by the corporates, the so-called legacy assets. Most of these are mortgage-backed securities, but some are backed by other assets, such as credit card receivables, auto loans or student loans, according to Love.
A year after the takeover of the two biggest corporates, U.S. Central FCU and WesCorp FCU, NCUA is confident it has stabilized the corporate system, as evidenced by successful efforts to stem withdrawals of deposits. She noted that last spring’s seasonal outflow of deposits did not occur as usual, largely because of NCUA’s guarantee of all corporate deposits. More recent data indicates the corporates are experiencing normal shifts in deposits too. “That has been the main medium that has stabilized the corporate system,” said Love.
“Liquidity was the biggest issue,” said Love, explaining that NCUA’s main focus on enabling the corporates to hold on to the troubled bonds and not have to sell them at fire-sale prices, which would require them to realize losses on their books.
NCUA Chairman Debbie Matz this week said NCUA will propose a resolution of the legacy assets held by the corporates before it finalizes its new corporate rule, to ensure natural person credit unions’ new investments with the corporates will not be jeopardized by the bad assets. Matz said she intends to release a plan on the legacy assets before June.
The vast majority of more than 800 commenters on the agency’s corporate rule made it clear they will not participate in a recapitalization of the corporates unless they are assured that new investments will not be affected by the legacy assets.
