ALEXANDRIA, Va. NCUA changed its stance on the permissibility of Fannie Mae’s risk-sharing bonds and said federal credit unions are authorized to invest in the securities.
Last week NCUA’s Office of Capital Markets and Planning told Credit Union Journal the Fannie bonds were not permissible investments because credit unions are allowed to invest in government securities that are fully guaranteed and the risk-sharing securities are not. But the key to the permissibility of the investments, it turns out, is the issuer in this case Fannie Mae.
“Upon additional review, we have determined federal credit unions are authorized to purchase such securities because the Act specifies FNMA securities be “issued by or fully guaranteed as to principal and interest,” NCUA said yesterday.
“While permissible, these securities are complex and could pose credit and other risks, especially as the “loss-sharing” feature adds a component of credit risk that has not been part of the GSE note structures in the past,” said NCUA. “NCUA supervisory expectations are that insured credit unions contemplating purchasing these instruments will need to apply appropriate due diligence and expertise.”
The ruling comes as Fannie Mae is planning to offer the bonds later this fall. Fannie’s planned issuance of the risk-sharing bonds follows a $500-million offering of similar securities by Freddie Mac in July.
