Fears at the National Credit Union Administration over corporate credit union investments have quieted.

The agency was concerned about the collateralized mortgage obligations held by about six corporates late last year. But after working with those institutions, the regulator's fears now are soothed, H. Allen Carver, director of the agency's office of corporate credit unions, said in an interview last week.

"We feel better with the situation as we have it today," he said.

Moreover, the agency is confident that it will not soon be confronting a repeat of the investment and liquidity crises that struck Capital Corporate Federal Credit Union and forced it to seek a merger partner last year.

Mr. Carver said he expects Cap Corp and Western Corporate Federal Credit Union to submit a merger application early this week and for the combination to go to an NCUA board vote Friday.

Agency and industry sources expect the merger to be approved.

Cap Corp was exceptional among the industry's 43 liquidity centers in that its portfolio held an unusually large concentration of collateralized mortgage obligations and many of those investments were shaky, Mr. Carver said.

"There are good CMOs and bad CMOs," said Mr. Carver. "There is no comparison in the quality of investments in Cap Corp and the other corporates. They were not nearly of the quality found in other corporates.

"We're on top of the situation with CMOs" in corporate credit union portfolios, Mr. Carver said. The agency also is comfortable with the liquidity levels of other corporates.

Cap Corp got caught in a liquidity crunch last year when credit union depositors began withdrawing money because of increased loan demand. About $1 billion of its $1.9 billion in assets was tied up in CMOs, which it could not sell without taking a loss.

The Lanham, Md., corporate began borrowing to fund the increased demand by depositors. An NCUA examination in October found it had borrowed roughly $800 million, exceeding its borrowing authority, said NCUA Executive Director Karl Hoyle.

After the examination, NCUA permitted Cap Corp to borrow enough to fund its transaction accounts but no more, Mr. Hoyle said. Cap Corp put a hold on deposits in December and approached Wescorp with a merger offer.

NCUA officials are hoping that tighter supervision, as well as the comparatively conservative investment strategies of other corporate credit unions, will prevent a repeat of the Cap Corp situation.

The NCUA has been working to improve its reporting requirements for corporates, particularly in the investment area, Mr. Carver said. Also, the corporate examiner staff has been increased to 20, from 14.

The agency also is improving the quality of its corporate examiners, Mr. Hoyle said. About half the 14 original examiners have been removed from the office of corporate credit unions and now are supervising regular credit unions.

Among them is an examiner who did a nine-hour, off-site supervisory contact examination of Cap Corp in September and failed to find problems that turned up in a more than 400-hour examination the next month.

Despite the agency's optimism, some in the industry remain concerned that further interest rate increases could cause problems for some corporates.

Reports last year by the General Accounting Office and an NCUA-appointed commission both raised concerns about corporates' growing investments in CMOs and their assumption of more interest rate risk since 1990.

The commission's findings, known as the Black Report, were critical of some corporates' managing of interest rate risk and questioned the quality of management.

Corporate officials themselves say they are well-situated to deal with rising rates.

George D. Wohanka, chief investment officer of Wescorp, said the $12.4 billion-asset corporate figured in 1993 that rates would start to rise and began cutting back on extension risk. Additionally, by March 1994, it had stopped buying fixed-rate assets of any sort.

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