ALEXANDRIA, Va. (9/9/11)--The National Credit Union Administration (NCUA) “failed to adequately assess or timely identify key risks” related to the concentration of mortgage-backed securities held in now-liquidated Constitution Corporate FCU’s investment portfolios “until it was too late,” the NCUA’s Office of the Inspector General has found. Constitution was one of several corporates whose investments in risky mortgage-backed securities eventually led to troubles. Members United Bridge Corporate FCU assumed the assets of Constitution Corporate FCU late last year after Constitution was liquidated. Constitution held a total of $1.2 billion in marketable securities as of July 31, 2010, and the NCUA estimated that $238 million of that total was comprised of private label mortgage-backed securities, $21 million of that total was comprised of commercial mortgage-backed securities, and $93 million of that total was comprised of asset-backed securities. The Office of the Inspector General in a material loss review of Constitution Corporate said that “stronger, more-timely supervisory actions and restrictions on concentrations could have provided opportunities for reasonable divestiture of investment securities,” helping the credit union to avoid the losses that ultimately led to liquidation. The inspector also noted that the NCUA at that time did not impose “specific investment concentration limits” and other regulatory structures that could have helped address “Constitution’s concentration risk and increasing exposure to credit, market, and liquidity risks.” In the report, the Office of the Inspector General also found the lack of adequate and timely regulatory oversight “was partially attributable to [NCUA] corporate examiners not having the appropriate regulatory support, such as more specific investment concentration limits, to adequately address Constitution’s concentration risk and the exposure to credit, market, and liquidity risks.“ The NCUA in its response said that its new corporate credit union rules and its large-issuer working group will help prevent the issues faced by Constitution and other corporates in the future. The agency also noted the unprecedented nature of the economic issues faced by the corporates in recent years. The inspector general also noted that the NCUA was not the only one to blame in this case, as the failed corporate “relied heavily on ratings assigned to the securities” that it purchased and “did not establish prudent sector concentration limits to reduce the credit risk exposure related to the underlying assets of the mortgage-backed securities.” The corporate also failed to “properly identify and monitor credit risk exposure in the underlying mortgage loan collateral of the mortgage-backed securities held in the investment portfolio,” the report added. For the full report, use the resource link.