CUs Not on Cloud Nine With HARP, But Some Corporates Are SIPping Away
CU HARP was designed to help credit unions rework member mortgages and signed up $164 million worth of takers. The number fell far short of the agency's $2 billion cap and doesn't appear to have helped the estimated 10,000 households the NCUA said it hoped would benefit from the measure.
Some have criticized the plan for appealing to a limited number of large credit unions; by the NCUA's own estimation, only about 600 credit unions
were eligible by design, "for efficiency purposes," said Steve Sherrod, CLF
"The minimum note size was $1 million, based upon a qualifying credit union having $1 million in delinquent first mortgages," he said, "and there just aren't that many that do."
Robert Graeff, president/CEO of the $28 million Delta Schools Federal Credit Union in Antioch, Calif., said he understands that large credit unions are the ones feeling the real estate pinch the most. Delta Schools does offer both first and second mortgages, but he's only taken one loss so far and it's possible he'll recover part of it.
However, Graeff said real estate delinquencies are still a big enough problem in small and mid-sized credit unions that they need an agency-sponsored program, too.
"A small credit union is just as needed by its membership as a large one," Graeff said. "We serve a purpose; not everyone wants the Bank of America experience. Our members want to be greeted by name and work with an institution that makes decisions based not just on numbers, but on the relationship they've had with us over the years."
He added that contrary to popular belief, many small credit unions have relatively large mortgage portfolios, and it's only fair that government programs benefit all sizes of institutions.
Phil Poehler, chief lending officer at the $210 million Prevail Credit Union, said he had some initial interest in CU HARP, although his Seattle-based institution has suffered limited real estate losses. Prevail operates a robust real estate shop and counts $62 million in real estate loans on its books. Currently, four properties are in foreclosure, and its real estate loans average $220,000.
However, when Poehler started researching CU HARP, he said it seemed like more trouble than it was worth.
"It just wasn't that clear, and without putting a lot of time into it, I couldn't see what value it would bring to our members, even if we were having problems," he said.
NCUA Spokesman John McKechnie said that, as a safety and soundness regulator, the NCUA didn't set benchmarks for the program, and simply provided what credit unions said they needed.
Sherrod added that he thinks CU HARP's small initial draw amount is a good sign that credit unions are successfully working out delinquency problems on their own.
"Chairman Fryzel has said on numerous occasions that he will provide the tools needed to deal with any balance sheet problems," McKechnie said.
McKechnie also said the agency does not plan on making adjustments to the program so more credit unions can qualify, but added that "time will tell how many members are assisted by HARP" and "the program is very much still in its infancy."
CU SIP was designed to help corporate credit unions pay down external borrowings from sources like the Federal Home Loan Banks using advances taken by natural person credit unions from the CLF. Natural person credit unions reinvest the CLF advance in corporate certificates, and earn a 10 basis point income.
CU SIP will initiate additional monthly advances over the next six months.
"The original design of the program was to do a ladder of one-year borrowings that would mature, sequentially, over six months," Sherrod said. He said he isn't speculating how much corporates will request between now and June, but noted the program requires a $500 million minimum monthly draw.
Paying down external debt frees up collateralized assets. Corporates have experienced a liquidity squeeze over the past year as their assets have decreased, thanks to declining asset-backed securities values and fewer deposits from natural person credit union members, who need to account for their own losses while continuing to fund member loans.
"Corporate-owned, asset-backed securities have principal reductions each month, so we're anticipating as those securities have pay downs, corporates would repay their borrowings as they come due," Sherrod said, adding that using SIP funds to pay down liquidity lines was a condition of CU SIP participation.
McKechnie said he's confident his corporate regulators will effectively track where CU SIP funds go, adding that some corporates have NCUA examiners on site.
Only two corporates participated in the initial draw, U.S. Central FCU and Western Corporate FCU.
When the CU SIP program was first announced, Members United Corporate FCU Chief Marketing Officer Victor Vrigian told Credit Union Times his corporate was still reviewing the details, but "I don't know why we wouldn't want to participate."
However, Vrigian said Members United changed its mind because the program wasn't a good fit. "The program requires participating corporates to retire existing debt and in a specific priority order: Federal Reserve Discount Window borrowings until reduced to zero, then FHLB borrowings, then other qualifying debt," he said. "Based on the size of the initial offering and the fact that we have no discount window debt-while others in the network do and could benefit from CU SIP-and, the cost increase to Members United of using SIP proceeds to retire the FHLB debt on Members United's books, we chose not to bid for CU SIP in the first round."
However, Vrigian said some Members United members wanted to participate in CU SIP's initial draw, so the corporate referred them to WesCorp.
"The corporates worked as a system to generate interest and processed requests for participation by natural person credit unions," Vrigian said. "Independently, each corporate decided whether to participate based on what made sense for their balance sheets."
He added that Members United may participate in future months if it's in the best interest of its members. --firstname.lastname@example.org