NCUA Plans Massive Securitization Of Toxic Assets Held By Corporate CUs

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WASHINGTON — NCUA is putting together a plan to collect as much as $50 billion of underwater mortgage-backed securities held by corporate credit unions and securitize them for sale on the open market as part of its plan to resucitate the troubled corporate system.

In segregating the troubled investments from the books of the corporates the credit union regulator is struggling with accounting issues that would require them to realize any losses on the sale of the securities, according to NCUA Chairman Debbie Matz, who spoke to NAFCU's annual Congressional Caucus this morning.

The vast majority of the toxic assets are held by two huge corporates that have been run by NCUA under conservatorship since March 2009, WesCorp FCU, a one-tme $34 billion corporate in San Dimas, Calif., and U.S. Central FCU, the one-time $52 billion corporate in Lenexa, Kan., which conglomerates investments for a network of 27 regional corporates. Most of those troubled assets are private label MBS. Assets from as many as a dozen other corporates would also be included in the massive securitization.

NCUA's Matz said new rules the agency will pass later this week will bar corporates from investing in private label MBS or subordinated securities and set strict new limits on concentration of assets. Both WesCorp and U.S. Central had large concentrations of their portfolios tied up in MBS. By the time it was taken under federal conservatorship WesCorp had some 95% of its assets invested in private label MBS.

The new corporate rules, said Matz, "will fundamentally change the way the corporates operate" by raising minimum capital levels for the corporates; setting new restrictions on risk and asset liability management and on board governance, and setting minimum requirements for director service on corporate boards.

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