"That original 0.30% premium assessed back in January, we now believe that will be reduced to 0.15%," NCUA Director of the Office of Examination and Insurance Melinda Love said during a June 24 Webcast. She added the number could change before the final recommendation to the NCUA Board is made in September.
The first quarter always shows very strong share growth and when annualized can be in the double digits, Love said, but also typically levels off through the remainder of the year. So while the NCUA is expecting share growth to taper off, it still expects higher-than-usual deposit growth.
Natural person credit union deposit growth hasn't translated into corporate deposit growth, however, which has created a "stable but tenuous" outlook for corporate liquidity.
Office of Corporate Credit Unions Director Scott Hunt requested that credit unions increase their deposits in corporates. He cautioned against investing outside the corporate system because if too much money flows out, it could force the corporates to sell securities in a distressed market.
Though U.S. Central and WesCorp have retired most of their external borrowings, the two still rely upon NCUA funding to manage liquidity, Hunt told participants in the Webcast. Combined, the two corporates owe $20 billion between a $10 billion NCUSIF loan, U.S. Central's $1 billion capital note, $8.2 billion in SIP funds, and $450 million from the Central Liquidity Fund's HARP.
"The good news is we do have the cash to facilitate services and provide a measure of fluidity to meet the daily needs of members," Hunt said, "But the bad news is it's on the back of the NCUA."
The NCUA does not intend to indefinitely provide the funds, he said, adding that losses on corporate-owned mortgage-backed securities could climb even higher.
Temporary moratoriums on foreclosures artificially capped foreclosure activity, but those moratoriums have since been lifted, and the foreclosure rate is ticking up as a result, he said. In particular, option ARMs will reset during 2010, increasing payments as much as 100%. Adding insult to injury, option ARMs typically require low down payments, so few homes have the equity to support the outstanding mortgage balance.
"We don't like reporting these results, but the recovery prospects are not good in the near term," Hunt said.
U.S. Central and WesCorp have each trimmed more than $10 million from their operating budgets, and other corporates have also made "sizeable cuts," he said.