SAN ANTONIO - A National Credit Union Administration official defended the agency's requirement that institutions divest collateralized mortgage obligations that fail a stress test.

The policy protects credit unions in the long run, NCUA accounting officer Karen Kelbly told the National Association of Federal Credit Unions chief executive officers conference here last week.

"We're not opposed to CMOs, we just want you to buy good ones," she said. "We've seen brokers that devise CMOs that pass" a stress test today and fail tomorrow, she said.

Many of the roughly 100 credit union executives attending the conference grumbled about the agency's divestiture requirement. Approved in 1992, the regulation has affected credit unions only recently because interest rates have risen and because the agency has applied mark-to-market accounting to the securities.

Some executives said that by forcing divestiture the regulator could be creating safety-and-soundness problems in the industry.

Wilfred F. Broxterman, president of Hughes Aircraft Employees Federal Credit Union, said the NCUA should take into account that most larger credit unions are sophisticated enough to know what they're doing with the instruments.

"They're treating credit unions as children, not organizations that know what they're doing," he said. "I believe it's inappropriate for anyone to take a computer model and say when the needle hits this point you have to sell it."

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