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CLF change to ease corporate balance sheet pressure
ALEXANDRIA, Va. (1/23/09)—The National Credit Union Administration (NCUA) Thursday approved an action that will have the effect of changing the way current outstanding loans from the Central Liquidity Facility (CLF) are booked by corporate credit unions, as well as by US Central FCU. At its open board meeting, the NCUA Board voted
Click to view larger image NCUA Central Liquidity Facility President Owen Cole explains a proposed change in the way current loans oustanding are booked by corporate credit unions and U.S. Central. Cole made his presentation during yesterday's monthly NCUA Board meeting in Alexandria, Va. (Photo provided by CUNA)
2 to 1 to delegate to CLF President Owen Cole authority to sign an amendment to the Repayment, Security and Credit Reporting Agreement currently in place between US Central and the CLF. Cole could also amend an Assignment Agreement between US Central and CLF. The action was designed to execute a change in the way current loans outstanding from the CLF are booked by corporates and by US Central by allowing both US Central and participating corporates to assign the loans, without recourse, to the CLF. By removing the loans from the books of US Central and participating corporates, the new agreement will alleviate pressure on corporate balance sheets created by holding these assets, according to an NCUA staff document. The new approach, the document noted, will change the way loans are administered in the future as well. “(A)lthough (US Central) will retain its role as master servicer and the relevant corporate will continue to service the loan, loans will be booked exclusively as an asset of the CLF.
Click to view larger image NCUA Board Member Gigi Hyland during Thursday's monthly meeting questions an agency proposal that would change the way current loans outstanding from the Central Liquidity Facility are booked by corporate credit unions. Hyland voted against the proposal, which passed 2-1. (Photo provided by CUNA)
"In connection with this change, the corporate servicing the loan will agree in an ancillary agreement with USC (to which CLF is not a party) to subordinate any claims it may have to collateral also pledged to secure the CLF indebtedness,” the NCUA noted. Board Member Gigi Hyland cast the dissenting vote. She said she was “not convinced” that the CLF should assume the full the risk of default on these loans. Hyland said that the CLF would lose the corporates’ and US Central’s “guarantee” on these loans because they would be transferred without recourse, and she stated that she believes that “a guarantee is important” given the current financial crisis. Hyland also expressed concern that this program would not help natural person credit unions that are experiencing lower capital levels and possible sanctions under PCA because they have expanded their balance sheets by participating in the CU SIP and CU HARP programs.
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