ALEXANDRIA, Va. – NCUA is watching closely a pilot program by the FDIC to securitize assets from failed banks as a means of disposing billions of dollars in private label mortgage-backed securities held by corporate credit unions.
Disposal of the so-called legacy assets – those held by corporates before a planned reform of the system by NCUA – is seen as critical to any plans to recreate the corporate system. Hundreds of credit unions commenting on NCUA’s corporate proposal are clear they will not participate in a recreated corporate system unless the new system is insulated and their capital protected from the billions of dollars in losses on the legacy assets.
NCUA is said to be studying the FDIC plan for use in disposing of the legacy assets on the open market. Under the plan, mortgage-backed assets would be gathered from U.S. Central FCU, WesCorp FCU and other corporates and securitized, sources told the Credit Union Journal. The bonds would be sold with the guarantee of the U.S. Government as a credit enhancement. The bonds would be securitized and sold by Wall Street firms.
The corporate system is holding as much as $40 billion in troubled investments that may qualify under NCUA’s legacy assets plan. The bonds have been marked to unrealized losses of as much as $20 billion. NCUA Chairman Debbie Matz said she wants to issue a plan for the legacy assets before the NCUA Board approves a final rule on corporate reform.
The FDIC went to market Friday with a $1.8 billion offering backed by private-label MBS that had been held by banks taken over by the regulator the last two years. Two additional offerings worth a total of $2.2 billion are planned.
The FDIC sold $1.33 billion of floating-rate notes that yield 55 basis points more than the one-month London interbank offered rate, or Libor. The agency also sold $480 million of fixed-rate notes that yield 3.367%, or 85 basis points more than the benchmark swap rate.
The $1.33 billion class has a projected weighted average life of 3.11 years and the smaller class has an expected average life of 4.71 years.
The notes were sold at lower spreads than initially offered amid a lot of demand.
While the FDIC is experienced in securitization deals such as these – having sold bonds backed by failed S&Ls in the 1980s – this would be a first deal of its sort for NCUA.
