e-Weekly
May 6, 2009
House Leaders Will Move Quickly on NCUA Stabilization
House financial leaders, including Representative Barney Frank (D-Mass.), have promised to act quickly on H.R. 1106, Helping Families Save Their Homes Act, once the bill returns to the House. This bill includes the National Credit Union Administration (NCUA) Corporate Stabilization provisions.
The Senate was expected to vote on its version of the bill, S. 896, late last week, but Senate Banking Committee Chairman Christopher Dodd (D-Conn.) on Friday, May 1 elected to push the vote back. The Senate began voting on this bill starting Tuesday, May 5.
In a recent letter to Dodd, Representative Frank, along with cosigners Paul Kanjorski (D-Pa.) and Luis Gutierrez (D.-Ill.), supported Dodd's efforts to include the temporary corporate credit union stabilization fund as part of H.R. 1106. The stabilization legislation, introduced by the NCUA, would enable credit unions to spread the cost of National Credit Union Share Insurance Fund (NCUSIF) replenishment over a longer period of time.
According to the letter, credit unions would pay a 99 basis point charge for every $100 in deposits if the current law is not changed. This one-time charge could cause an estimated two-thirds of credit unions to report negative earnings for 2009 and could harm 225 federally-insured credit unions that would fall below the necessary level of capitalization.
Representative Kanjorski plans to introduce NCUA's stabilization plan to the House "in the very near future." Representative Gutierrez, who currently chairs the House Financial subcommittee on financial institutions and consumer credit, also plans to have his subcommittee review the proposal before the end of the month. Gutierrez will also discuss potential changes to NCUA's regulation of corporate credit unions, the letter added.
NCUA Releases Results of MBS Reviews
The National Credit Union Administration (NCUA) recently released the results of the analyses of all private label mortgage-backed securities at WesCorp and U.S. Central.
According to the analyses--by Clayton Fixed Income Services, Inc.-- the range of estimated credit losses for U.S. Central under optimistic, base and pessimistic scenarios are $0.6 billion, $2.2 billion, and $6.5 billion, respectively. WesCorp has an optimistic loss level of $3.0 billion, a base of $5.6 billion and a pessimistic loss level of $7.9 billion.
The Other-Than-Temporary-Impairment (OTTI) charges to be reflected on the March 31 statements for U.S. Central and WesCorp are $2.3 billion and $5.8 billion, respectively. This will result in an extinguishment of all Paid-in-Capital (PIC) and Membership Capital Accounts (MCA) at WesCorp. For U.S. Central, all PIC and 63% of MCAs will be exhausted. The March 31 financial statements are expected to be released by each corporate this week, NCUA said.
The agency also noted that renewed liquidity pressures are mounting from normal seasonal outflows. Both credit unions have worked to establish contingent market funding sources, which remain limited due to the broader problems in the credit markets. NCUA continues to make contingency plans for potential liquidity needs, according to NCUA Chairman Michael Fryzel.
At its May meeting, the NCUA board plans to consider changes to the Temporary Corporate Credit Union Liquidity Guarantee Program to provide longer term funding options.
"I encourage all credit unions to continue to support liquidity needs by keeping all surplus funds within the credit union system," Fryzel said. CUNA continues to make every effort to urge NCUA to consider alternative approaches to extinguishment.
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