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MBS Recoveries Reduce Credit Union Assessments

No further assessments expected for corporate credit union fund

Feb. 13, 2014

By Mortgage Daily staff

Billions of dollars in assessments paid by credit unions to cover the cost to clean up the failure of five corporate credit unions are likely coming to an end thanks to recoveries on mortgage-backed securities.

An announcement Wednesday from the National Credit Union Administration indicated that there is a good chance that credit unions won't receive any more assessments for the Temporary Corporate Credit Union Stabilization Fund.

The NCUA already announced in November that there would be no assessment in 2014 for the congressionally created fund.

Credit unions have paid assessments amounting to $4.8 billion from 2009 until 2013.

The fund enabled credit unions to be assessed over seven years for money borrowed from the Department of the Treasury when the corporate credit union system cracked.

Corporate credit unions provide services for retail credit unions and don't deal directly with the public.

Two corporate credit unions, U.S. Central Federal Credit Union and Western Corporate, were placed into conservatorship in 2009 by the NCUA.

Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union and Constitution Corporate Federal Credit Union -- were placed in conservatorship.

The five institutions accounted for 75 percent of assets at all corporate credit unions.

Among their assets were investments in non-agency residential mortgage-backed securities. As the financial crisis swung into full crisis mode and loan performance stumbled, the value of private-label RMBS sank.

A 2012 report from the Government Accountability Office said that poor investment and business strategies contributed to the failure of corporate credit unions.

"The failed corporates over concentrated their investments in private-label, mortgage-backed securities and invested substantially more in private-label MBS than corporates that did not fail," the GAO report said

But the NCUA claims that the corporate credit unions were deceived about their RMBS investments, and it went after issuers to recover losses.

Lawsuits were filed in June 2011 against J.P. Morgan Securities LLC and RBS Securities Inc. for securities sold to five of the corporate credit unions. Also during 2011, NCUA sued Wells Fargo & Co.-subsidiary Wachovia Capital Markets LLC.

Barclays Capital Inc. and UBS Securities LLC were both sued by the NCUA in September 2012.

In October 2012, the NCUA filed a lawsuit against Credit Suisse Securities on $715 million in MBS sold to three of the institutions.

Morgan Stanley & Co. Inc., Morgan Stanley Capital I Inc., Barclays, J.P Morgan/Bear Stearns, Credit Suisse, Royal Bank of Scotland, UBS, Goldman Sachs, Wachovia and Residential Funding Securities LLC, -- were sued in federal court by the NCUA.

Settlement proceeds have been rolling in.

Deutsche Bank in November 2011 agreed to a $145 million settlement, while another $21 million settlement was reached that same month with Citigroup Inc. A settlement with HSBC brought the total to $171 million.

In April 2013, the NCUA announced a settlement with Bank of America Corp., reportedly for around $164 million.

In November, JPMorgan Chase & Co. announced that it had reached an agreement in principal with President Obama's RMBS Working Group of the Financial Fraud Enforcement Task Force. The settlement is costing Chase $13 billion in addition to a prior $4 billion settlement reached in October with the Federal Housing Finance Agency.

Chase's settlement includes $1.4 billion that is being given to the NCUA.

The NCUA reported Wednesday that credit unions are much less likely to be charged another assessment by the Temporary Corporate Credit Union Stabilization Fund.

The net remaining projected assessment for the fund now runs from negative $1.9 billion to negative $0.4 billion. That's an improvement from the negative $0.2 billion to $1.6 billion projection from the second-quarter 2013.

"The net proceeds from the $1.4 billion JPMorgan Chase settlement in November 2013 and the continued improvement in the performance of the legacy assets underlying the NCUA Guaranteed Notes program during the third quarter of 2013 caused the decline in the assessment range," the regulator said.

After making a $1 billion payment to the Treasury in December 2013, the NCUA must still repay $2.9 billion in outstanding Treasury borrowings before any remaining Stabilization Fund distributions can be made to credit unions.

The NCUA said litigation is still pending against Barclays Capital, Credit Suisse, Goldman Sachs, RBS Securities, UBS Securities and Morgan Stanley.

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