WASHINGTON - Moving faster than expected, the government is unloading Capital Corporate Federal Credit Union's entire $1.2 billion investment portfolio.

The fast selloff makes liquidation of the seized institution all but inevitable, industry and government sources said Thursday.

The National Credit Union Administration seized Cap Corp on Jan. 31 after the industry liquidity center in Lanham, Md., suffered paper losses totaling $100 million. Cap Corp gambled on collateralized mortgage obligations, and lost when interest rates rose.

While NCUA officials have insisted publicly that they are not sure whether Cap Corp would be liquidated, most sources said this week's asset sales have sealed the corporate's fate.

"They've played the sale pretty close," said one NCUA source. "There was never any other intention but to liquidate."

But another NCUA official claimed "not to be aware of any plans" for liquidation.

"We'll have to see which way the market goes," the official said. "There's the hope that some residual amount could be" purchased and assumed by another institution.

On Tuesday and Wednesday the agency sold $798 million of investments held by the credit union, for a loss of $34 million, said Bob Loftus, NCUA director of public and congressional affairs. Most of the instruments were collateralized mortgage obligations.

"The losses were much less than we had expected," Mr. Loftus said.

On Thursday, the regulator, which is being advised by BlackRock Financial Management, started selling the remaining $431 million of investments.

"They will continue to sell as the market dictates," said an agency official. "That could mean all or some of it could be sold today, although it's likely not all of it would be sold today."

After seizing Cap Corp, the NCUA on Feb. 6 lifted a two-month-old freeze on withdrawals. About $215 million of the credit union's $787 million in deposits have flown out since then.

Through an arrangement with the NCUA, U.S. Central Credit Union, the credit union industry's primary liquidity facility, funded the withdrawals.

Paying off those depositors, as well as earlier debts incurred by Cap Corp, pushed the agency to sell. As of Feb. 14, loans stood at $855 million.

Leonard Skiles, president of the NCUA's Asset Liquidation Management Center, Austin, Tex., and conservator of the corporate, told Cap Corp members in a Feb. 14 letter that the agency intended to sell the portfolio. But the time frame of the divestiture laid out in the letter - 30 to 90 days - was radically longer than the actual process.

The NCUA changed its strategy because of the recent upswing in the market, an NCUA official said.

The conservatorship was anticipated to cost up to $100 million, with the insurance fund taking a $26 million hit, but now agency sources expect Cap Corp's $74 million in capital will cover any loss.

"Our responsibility to the insurance fund dictated what we did," an agency official said.

Cap Corp has 483 credit union members, including many that serve government employees in Washington. The NCUA will continue service to them after divestiture.

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