WASHINGTON – Pressure continued to mount yesterday for a credit union-centric assistance program after the Treasury Department abandoned its plans to use the $700 billion bailout funds to buy distressed mortgage assets.
The move effectively cuts credit unions out of the bailout, as they are also not eligible for the billions of dollars in cash being infused into banks. In addition, increasing amounts of the funding approved by Congress last month are expected to be used to bail out the auto industry and non-bank financial companies, like credit card, consumer and auto lenders.
Credit union sources pointed out that the bailout plan, known as the Troubled Asset Relief Program, or TARP, was sold to Congress as a program to buy up distressed mortgage assets. "Right now we’re still urging Treasury to continue the congressional intent of the program," said Brad Thaler, senior lobbyist for NAFCU.
"The Treasury’s announcement today causes us concern," said CUNA President Dan Mica. "Although the Economic Emergency Stabilization Act explicitly includes America’s credit unions, the implementation of the program thus far has not included credit unions, and the Treasury’s announcement makes it unclear how credit unions will be included."
"It has always been our position that credit unions not be disadvantaged by the government’s response to the nation’s financial crisis. Credit unions could have been covered under a troubled asset purchase plan. But, because of the credit union capital structure, to date credit unions have not been eligible for the capital infusion plan."
CUNA, which has been lobbying NCUA for a credit union resolution, continues to push for some kind of initiative through NCUA. "Our preference is that credit unions be able to turn to (NCUA) for assistance, so that credit union funds can help credit unions solve their own problems, with backup funding from Treasury if necessary," said Mica. "We again urge NCUA to implement a program for credit unions – by credit unions – that accomplishes the intent of the Emergency Economic Stabilization Act for the movement."
CUNA has suggested several approaches to a credit union-focused resolution, including having NCUA use funds from the TARP to either buy distressed mortgage assets from credit unions on its own; or to finance emergency loans through the National CU Share Insurance Fund; or to use the increased capacity of the Central Liquidity Facility, now $41.5 billion, to fund an assistance program
While credit unions, including corporate credit unions which are sitting on more than $10 billion of underwater mortgage assets, had been slow to respond to the TARP, many were hoping the government initiative would recreate a viable market for mortgage securities and restore some value to their mortgage securities holdings. But that hope appeared to disappear with yesterday’s about-face by the Treasury.
NCUA Chairman Michael Fryzel agreed that the Treasury’s position represents a departure from the original intent of the program."In light of this, I’m in the process of communicating to Secretary Paulson to ensure that whatever form the TARP takes it will be appropriate for credit unions and their members," he told The Credit Union Journal yesterday.
