ALEXANDRIA, Va. - NCUA proposed a plan last week to funnel billions of dollars in low-cost funds to credit unions to help them refinance member mortgages headed for foreclosure.
NCUA Chairman Michael Fryzel said the agency has allocated $2 billion in loans through the Central Liquidity Facility to facilitate the Credit Union Homeowners Affordability Relief Program, or CU HARP, which could be expanded if the program proves successful. The loans will carry a low rate, as low as 1.75% to 2%.
Fryzel said the $2 billion is an initial figure, but he would like to see it go as high as $4 billion. That would be enough to refinance as many as 20,000 home loans.
"My principal reason for advancing CU HARP is simple," said Fryzel, "The consumer must not be left out of the broader government efforts to mitigate the housing and credit market dislocations."
"CU HARP is an effort to foster a solution whereby the NCUA and credit unions work together to assist distressed borrowers. It represents what I believe to be an innovative and practical use of federal homeowner assistance that will also benefit credit unions and the market," the chief credit union regulator said.
The plan was brought to Fryzel a month ago by the CU Housing Roundtable, an ad hoc group comprised of some of the biggest credit unions organized by PrimeAlliance, the mortgage CUSO owned by Boeing Employees CU, BECU. Enactment of the plan, which must be approved by the NCUA board, represents an unprecedented collaboration between the government and the private sector to alleviate the ongoing mortgage crisis. It comes a week after the FDIC introduced its own plan to use $24 billion in funds from the Treasury's Troubled Asset Relief Program to finance adjustments of millions of at-risk mortgages.
What makes the plan so attractive, said Fryzel, is it helps get funding to needy homeowners without using taxpayer money. The money that would be provided through the CLF would be loans. "It's a loan," said Fryzel. "There's no hand out; no infusion of capital, no money provided by the government. All of these loans are secured and this money is going to be paid back."
The credit union regulator also expressed confidence the plan will be approved by the Treasury and the Federal Reserve, which have jurisdiction over the CLF.
"This is a credit union solution intented to get money down to the homeowners, down to where the money should be going, instead of to the big banks, who are using it to fund acquisitions and other things," said NAFCU President Fred Becker, who sits on the advisory committee of the housing roundtable and has been discussing the plan with Fryzel. "We think it's an opportunity to get loans out there to people who need them the most."
Gary Oakland, president of BECU CU, whose Prime Alliance CUSO organized the roundtable, said it is an opportunity to help needy credit union members, many of whom have been set back by troubled mortgages with other lenders. He said many of his members are holding distressed loans they obtained at area banks, like Washington Mutual, the local banking giant that failed recently because of its exposure to troubled mortgage loans.
"This is not an attempt to gain market share," said Oakland. "This is really a situation where everybody has been talking about protecting the institutions, and this is a chance to help the members, the customers of those institutions."
Other participants of the roundtable include: Alaska USA FCU, Alliant CU, Bellco CU, Bethpage FCU, Eastman CU, Financial Partners FCU, First Technology CU, SchoolsFirst FCU, Stare One CU, Suncoast Schools FCU and Wescom CU.
Under the plan, NCUA will make low-cost funds, as low as 1.75%, available to participating credit unions through the CLF. The CLF, which was almost unused for the past decade, has become the focal point of a credit union assistance program. NCUA has funneled more than $1.7 billion in short-term liquidity loans through the fund since September, when Congress agreed to increase its funding to $40.5 billion, from $1.5 billion.
Credit unions participating in CU HARP would be subject to eligibility requirements for members, like income level, default or danger of default, and borrower occupancy. The credit union would have the option of setting the rate break and would be able to increase the maturity of the loan as long as 40 years.
Separately, Fryzel called on Congress last week to make funds available through the Treasury's Troubled Asset Relief Program to allow NCUA to develop its own program to buy distressed mortgage securities from credit unions, since the Treasury has backed off its own plans to buy distressed assets under the TARP. Fryzel asked lawmakers to press Treasury to make funds available for a credit union TARP that the CU regulator would manage.
Credit unions so far have been ineligible for the billions of dollars of cash Treasury is infusing into some 150 banks, so the scrapping of the purchase of distressed mortgage assets effectively removes credit unions altogether from the massive government bailout of financial institutions.
"A TARP-like program, which creates a market for certain distressed assets, would be of significant and tangible benefit to credit unions," said Fryzel in a letter to congressional leaders. "I therefore request your assistance in securing those funds necessary for NCUA to construct a TARP" identical to the one created by Congress. The NCUA Chairman said NCUA would establish standards and procedures for the use of the funds.
Fryzel did not request a specific amount, but CUNA has been working with the agency for a TARP-like fund that would use as much as $30 billion of the $700 billion set aside by Congress for the Treasury's TARP.
