CUNA applauds NCUA 'legacy asset' timetable

ALEXANDRIA, Va. (3/24/10)—Credit Union National Association (CUNA) President/CEO Dan Mica yesterday commended the National Credit Union Administration's (NCUA's) projected timetable for solving the corporate credit union "legacy asset" issue.

NCUA Chairman Debbie Matz Tuesday, at a Missouri CU Association meeting, revealed that credit unions may see some positive regulatory action on corporate credit union legacy assets by the end of June.

Mica said of the chairman's announcement, "CUNA has stressed how crucial it is for the agency to solve the legacy assets issue in our comment letters, correspondence and conversations with NCUA.

"The chairman's timetable of addressing this issue before the proposed corporate rule is finalized is commendable and indicates the agency's willingness to listen and work toward a fair solution. CUNA will continue to work with her and the agency."

In her announcement, Matz said it has taken months of work, but the agency is "close to proposing a plan that would remove the riskiest legacy assets from ongoing corporates, while carrying forward the most valuable pieces of the corporate system."

"The plan would empower retail credit unions to choose which corporates they will support. And it would ensure that those corporates begin with clean balance sheets," Matz told her credit union audience.

Legacy assets are primarily mortgage-backed and asset-backed securities that were bought by corporates before 2009 that have been severely devalued as a result of the turmoil in the overall mortgage market.

Currently estimated losses on these legacy assets have already been expensed, but CUNA has in the past expressed two concerns with these legacy assets: First, if the actual losses turn out to be sufficiently less than expensed thus far, there should be an opportunity for the credit unions that took the losses to share in the gains, and, second, if the actual losses are greater than expensed thus far, that future capital contributors not be liable for those losses.

In Missouri, Matz warned it is still a work "very much" in progress, but the agency envisions a plan that "could even allow retail credit unions to recover future earnings from legacy assets that out-perform current loss projections."

However, there are still "a multitude of questions about underwriting, funding, accounting, and much more" that would have to be worked out, she said.

"There is no easy way to un-bundle over $50 billion worth of long-term assets, repackage them into marketable bonds, and move them from corporates' balance sheets without realizing the losses. This effort is so huge--and so important--that we are dedicating 20 of our top staff to work on it."

Matz asked for credit union patience, but added her team is cautiously optimistic that a comprehensive resolution plan will be brought to the NCUA board by the end of June.

In the meantime, NCUA is also reviewing over 800 comment letters on the agency's proposed rule to strengthen corporate credit union regulation.

"Based on the comment letters," Matz assured, "we will not move forward with a final corporate rule until after we announce the plan for legacy assets. While the legacy assets plan will ensure that corporates begin with clean balance sheets, the final rule will ensure that corporates maintain those clean balance sheets. When the new safeguards are refined and implemented, corporates will be much better positioned to protect retail credit unions' hard-earned capital."

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