WASHINGTON – The Senate yesterday rejected the controversial mortgage cramdown proposal, clearing the way for a vote today on a bill that would allow credit unions to stretch out expenses for the corporate credit union bailout over as long as eight years.
The corporate bailout provisions, attached to a housing bill, would allow NCUA to extend the recapitalization of the National CU Share Insurance Fund out over an eight-year period and create a Corporate CU Stabilization Fund which would finance the failure of any corporate credit unions, including U.S. Central FCU and WesCorp FCU.
The bill would also authorize NCUA to borrow as much as $30 billion from the U.S. Treasury to help stem a systemic emergency.
The additional funding comes not only as more corporates are facing financial problems, but as hundreds of credit unions are being battered by the deepening recession. Under current law NCUA is only authorized to borrow $100 million.
The $5.9 billion cost of the corporate bailout, which has been assessed all federally insured credit unions, is crippling many credit unions already burdened by woes in their real estate loans and growing lay-offs among their members. The costs, if required to be paid all this year, will push as much as 80% of all credit unions into the red for 2009, according to industry experts.
The bill would also triple the FDIC’s borrowing authority to $100 billion to deal with the growing number of bank failures.
The so-called cramdown provision, which would have allowed troubled homeowners to ask the bankruptcy courts to restructure their mortgages, was offered as an amendment to the bill by Sen. Richard Durbin, the Illinois Democrat and was defeated on a 51-to-46 vote. Durbin, who has been working on the proposal for at least three years, vowed to bring it back, either when the Senate bill is considered in a conference of House and Senate leaders, or as part of another bill.
