The National Credit Union Administration last week approved a pilot program that allows CUNA Mutual Group to buy credit union loans, then package them into funds and sell shares in the funds to individual credit unions.
CUNA Mutual, which provides insurance and investment services to credit unions, hopes to create a secondary market for loans, helping boost credit unions' liquidity, while expanding their investment options. Credit unions are restricted to investing in only those securities guaranteed or implicitly guaranteed by the U.S. government.
The first fund, with which CUNA Mutual has capitalized with $25 million, will buy member business loans. CUNA Mutual has already bought $1 million of business loans from one credit union and has commitments to buy more from several others.
Plans call for additional funds for credit card loans, car loans, mortgage loans and community development loans.
Under the pilot phase of the program, CUNA Mutual has agreed to limit the size of the program to $1 billion before returning to the NCUA for review.
