Credit unions recover faster than predicted from mortgage meltdown

Credit unions have a nice problem on their hands.

As explained in this excellent white paper published by CUNA today, if current projections hold, credit unions will have put more money into the Temporary Corporate Credit Union Stabilization Fund then will ultimately be necessary to cover the costs related to the failure of five corporate credit unions. In a nutshell, the cost of stabilizing the corporate system was originally estimated to be $ 15 billion, but now the estimated cost is between $ 5.5 and $7 billion. CUNA’s white paper is intended to spur debate within the credit union industry about how to best handle the repayments of these excess funds.

First let’s take a trip down memory lane. When the mortgage crisis hit, the value of mortgage securities purchased by the corporates tumbled in value. The Temporary Corporate Credit Union Stabilization Fund was authorized in May of 2009. Its primary purpose was to spread out the cost of paying for these securities. In return for allowing NCUA to securitized the remaining corporate legacy assets, Credit unions funded the Stabilization Fund with additional assessments. As of 2013 credit unions had already paid approximately $ 4.8 billion into the fund. The low point came in 2010 when credit unions had to pay an amount equal to 25.1 basis points of their total assets into the fund. Fortunately, the securities have performed better than anticipated, and NCUA’s legal efforts have netted more than three billion dollars in recoveries.

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