NCUA Town Hall: Regulator Says Private-Label Mortgage-backed Securities Led to Crisis (Misc News: October 14, 2010)
First of three parts
The corporates credit unions that were placed in conservatorship by the NCUA invested too heavily in private-label mortgage-backed securities, a federal regulator said at a town hall meeting.
Larry Fazio, deputy executive director of the NCUA, said the housing market’s nose dive, combined with a few other factors, led to the collapse.
“The mistake the corporates made was putting all their eggs in one basket,” Fazio said. “It was a confluence of everything going bad in the housing market to a fairly catastrophic degree.”
The NCUA is holding a series of town hall meetings around the country to explain why it conserved the corporates, the new rules it has put in place to avoid similar disasters in the future and how it plans to fix the financial mess.
Fazio said the conserved corporates held about $70 billion in liability, but have $31 billion in assets, meaning there is $39 billion to make up. Most of that money will be made up by resecuritizing the toxic assets held by the conserved corporates. Those assets will be sold on the open market, but will have the backing of the U.S. government.
NCUA pegged the cost of solving the problem at $13.9 billion to $16.1 billion. Another $5.6 billion in depleted member capital brings that range down to $8.3 billion to $10.5 billion. Take off the $1.3 billion credit unions have already paid in special assessments and the remaining cost is predicted to be $7 billion to $9.2 billion.
The plan includes $2 million per year for trustee management fees for the securitized legacy assets, Fazio said.
In crafting the plan, Fazio said the NCUA tried to follow the primary guiding principle for credit unions: that it couldn’t let any consumers lose money. To that end, NCUA decided it had to make sure there was no interruption of service by the corporates; preserve confidence in the credit union system; manage the problem to the least long-term cost and create a transition framework to allow for credit unions to choose how they will obtain corporate services in the future.
David Adams, CEO of MCUL & Affiliates, said that the agency has done a great job managing the crisis. Still, “without question, the agency shares some responsibility,” he said.
NCUA Board Member Michael Fryzel said the agency has learned a lot through the crisis. He said the agency is working on training of examiners and will beef up its staff of examiners as well.
Part two - Town Hall: Credit Union Suggestions Have Helped Shape Corporate System Rule
Part three - Town Hall: NCUA Wants Credit Unions to Stay on Message