Credit Unions Recover Faster Than Predicted From Mortgage Meltdown

February 10, 2017 at 9:27 am 1 comment

Credit unions have a nice problem on their hands.

As explained in this excellent white paper published by CUNA today, if current projections hold, credit unions will have put more money into the Temporary Corporate Credit Union Stabilization Fund then will ultimately be necessary to cover the costs related to the failure of five corporate credit unions. In a nutshell, the cost of stabilizing the corporate system was originally estimated to be $ 15 billion, but now the estimated cost is between $5.5 billion  and $7 billion. CUNA’s white paper is intended to spur debate within the credit union industry about how to best handle the repayments of these excess funds.

First let’s take a trip down memory lane. When the mortgage crisis hit, the value of mortgage securities purchased by the corporates tumbled in value. The Temporary Corporate Credit Union Stabilization Fund was authorized in May of 2009. Its primary purpose was to spread out the cost of paying for these securities. In return for allowing NCUA to securitized the remaining corporate legacy assets, Credit unions funded the Stabilization Fund with additional assessments. As of 2013 credit unions had already paid approximately $ 4.8 billion into the fund. The low point came in 2010 when credit unions had to pay an amount equal to 25.1 basis points of their total assets into the fund. Fortunately, the securities have performed better than anticipated, and NCUA’s legal efforts have netted more than three billion dollars in recoveries.

I know this may sound like dry stuff but it has a direct impact on your credit union’s balance sheet. For example, one option suggested by CUNA is to merge the Stabilization Fund into the Share Insurance Fund this year. The resulting surplus could mean that your credit union receives rebates for their excess payments sooner than what would have been conceivable just a few years ago.

There are also issues unique to those credit unions that had capital in Members United. Under NCUA’s current projections there is a good chance that your credit union will recover the cost of at least some of the paid in capital you invested in the Corporate. Under current estimates capital holders may see replenishments of between 20 and 36 percent of their Members United capital. In contrast, if you invested in Westcorp. or Constitution Corporate you are out of luck.

I have said it before and I will say it again. Credit Unions should give themselves a pat on the back and hold their heads high, with regard to their performance during the mortgage meltdown. The vast majority of natural person credit unions were prepared to absorb the economic shock, the industry paid its debts without the help of the US tax payer and now it is well positioned to realize a premium for its efforts. Let’s just keep in mind, as both NCUA and CUNA stress that we are still dealing with economic projections, and a lot can happen in the next four years. Anyone who thinks they know precisely where the economy is headed and the impact this will have on mortgage bonds is diluting themselves.

Entry filed under: General.

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1 Comment Add your own

  • 1. Feb. 13, 2017: Straight to The Point – The Point  |  February 13, 2017 at 4:13 pm

    […] If current projections hold, credit unions will have put more money into the Temporary Corporate Credit Union Stabilization Fund than will ultimately be necessary to cover the costs related to the failure of five corporate credit unions – New York’s State of Mind […]

    Reply

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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