NCUA will transfer the legacy assets from five seized corporates into a trust, and securitize them for investors from there. The trust framework should allow NCUA to securitize the bonds without having to recognize so-called unrealized losses, which would result in an immediate, severe write-down on the investments.
"This action to deal with the impaired securities on the corporates' books--together with reforms to the NCUA regulation that governs the corporate system--will create stronger safeguards for the nation's entire credit union system," said NCUA Chairman Debbie Matz. "The credit union community has long hoped to see a coordinated, market-based, least-cost solution to the corporate crisis, and we have delivered that today," she said.
The trust structure will also provide greater transparency, said NCUA Deputy Executive Director Larry Fazio.
"It will be on autopilot, out of our hands," he said.
Because the bonds will be offered to all eligible investors, prospectus documents and other disclosures will be available in the public domain, and will reveal facts on all underlying collateral, including current performance.
"Credit unions will be able to track the performance of the bonds," Fazio said.