ALEXANDRIA, Va. – NCUA said yesterday it won’t be selling troubled mortgage-backed securities held by U.S. Central FCU and WesCorp FCU into the Treasury’s toxic asset program because it would require those corporates to realize billions of dollars of losses on the MBS.
The Treasury program is leveraging private investment capital with federally backed loans to create a pool of $40 billion that will buy up troubled mortgage assets, like those held by the corporate credit unions. But the distress sales has made it unattractive to corporate credit unions.
Larry Fazio, deputy director of NCUA, said because the Treasury is buying the assets at a discount under the Public Private Investment Partnership, the corporates would have to record any losses they realize on the assets. "It would not offer us a significant price to warrant selling them into that program," said Fazio, speaking during NCUA’s webcast on the problems at corporate credit unions.
NCUA representatives also said they continue to hold out hope of returning U.S. Central and WesCorp, which the federal regulator took under conservatorship March 20, back to their members. "NCUA sees value in WesCorp and U.S. Central," said Scott Hunt, director of the agency’s office of Corporate CUs. Hunt indicated he expects more losses to accrue at the two troubled corporates and those losses will continue to flow down to natural person credit unions.
Hunt said he believes there will be "some measure of consolidation" during the transition period from the current regulation to the one that will be announced on Nov. 17, but stated point blank that the regulator would not be picking winners and losers. "NCUA is not dictating that any given corporate find a merger partner," he said.
The corporate system is expected to shrink, however, as a number of merger applications have been sitting on Hunt’s desk at OCCU. As the financial crisis unfolded last year the office essentially suspended all of those applications.
"We thought it best that such consolidation occur once we had stability in the system and a new rule," the director said. "It’s reasonable to expect that some measure of discussions are going on to say can we affect better service or mitigate risk if they are combined with another entity. I think (consolidation) is something that is probable."
