Stabilization Plan and Cram-Downs Float in Limbo as Trades Butt Heads
There originally had been talk of placing the two proposals in the same bill in the Senate, but that could be changing because of problems garnering the 60 votes needed to pass in that chamber.
The NCUA's plan to create a stabilization fund to replenish the NCUSIF after the agency's rescue of troubled corporate credit unions is not likely to be in danger, according to several sources on Capitol Hill and in the trade associations, but how quickly it moves is still unclear.
The wrangling over the bankruptcy provisions-also known as cram-downs-comes after the House passed a measure containing that change last month on a mostly party-line vote. Although Democrats have a majority in the Senate as well, the chamber's rules allow the minority to delay legislation and in those instances, 60 votes are needed. Some moderate Democrats have expressed concern about the cram-down provisions as well.
CUNA and NAFCU both opposed the measure in the House, but last week the trade associations were at odds over the best tactic to take during Senate negotiations.
Last Wednesday, NAFCU wrote Sen. Richard Durbin (D-Ill.), the key sponsor of the cram-down measure, saying it opposes the current version of a measure to let bankruptcy judges rewrite the terms of mortgages because it doesn't deal with the impact on private mortgage insurance contracts and on work-out plans for subordinate liens.
CUNA President/CEO Dan Mica responded in a statement that his organization believes "we are very close to acceptable resolutions on the two issues mentioned by NAFCU in its letter to Sen. Durbin. NAFCU would know that if they had not left the talks. The fact is, however, no deal has been made. CUNA will continue to work with Sen. Durbin and Senate leaders to develop a legislative approach that limits negative impact on credit unions."
The NCUA is watching the wrangling on cram-downs with interest.
"The [stabilization fund] legislation is going to get done whether they agree on the mortgage rewriting or not. This is must-pass legislation for us and the banks," said NCUA Deputy Director of Public and Congressional Affairs Robert Foster. "It's a little awkward for us since we don't have a position on the cram-down bill."
The NCUA wants Congress to create a stabilization fund financed by a larger line of credit from the Treasury Department so credit unions can spread out over seven years premiums for the cost of placing U.S. Central and WesCorp into conservatorship and for guaranteeing the deposits of natural person credit unions in corporate credit unions.
The agency currently has $100 million in borrowing authority and the full House and Senate Banking Committee have approved an amendment increasing that to $6 billion. The Senate panel gave the NCUA $18 billion in emergency borrowing authority. The fund would supplement the NCUSIF. The NCUA would pay back the Treasury Department over seven years and natural person credit unions would pay the additional premium to the NCUSIF over that time period.
The NCUSIF must be replenished if its equity ratio falls below 1.2%. It was 1.3% at the end of March.
The NCUA wants to create a separate entity because if the NCUSIF borrowed the money directly, the loan would become a liability for all federally insured credit unions that they would have to keep on their books.
CUNA and NAFCU are both pushing for changes to the NCUA plan. CUNA wants the emergency borrowing limit raised to $30 billion and to make the emergency authority given NCUA permanent. NAFCU is requesting that lawmakers give the NCUA $10 billion in borrowing authority and $30 billion in emergency borrowing authority.
NAFCU is also asking that Congress give the Central Liquidity Facility the power to make direct loans to all credit unions.
Foster said they are on the record as asking for $30 billion in emergency borrowing authority but "would be grateful" for any amount.
The NCUSIF needs to be replenished because of the problems of some of the corporate credit unions.
In January, the agency injected $1.1 billion in capital in U.S. Central Federal Credit Union after it reported $1.2 billion in losses for last year and the agency also guaranteed the deposits of all natural person credit unions in corporate credit unions.
Last month, the NCUA placed U.S. Central and Western Corporate Federal Credit Union in conservatorship.
The agency has estimated those actions could cost the NCUSIF $5.9 billion.