Poor investment decisions by executives and volunteers and inadequate oversight by the NCUA were the key factors in the heavy losses at Members United Corporate Federal Credit Union that caused the NCUA to have to conserve it, the agency’s Officer of Inspector General concluded.
“Specifically, management and the board’s inadequate oversight resulted in Members United purchasing significant holdings of private-label mortgage-backed securities, many of which were later downgraded to subprime and Alt-A, that exposed the credit union to excessive amounts of financial risk,” according to the report.
The NCUA conserved Members United last September and liquidated it in October.
As of Feb. 1, it had cost the Temporary Corporate Credit Union Stabilization Fund $400 million. It recorded OTTI charges of $608 million from 2008 through July 2010.
The report concluded that the credit union’s management didn’t establish proper concentration limits, relied too heavily on outside ratings agencies, didn’t properly monitor credit risk exposure and relied on the corporate credit union structure to provide financial strength and liquidity.
The report also concluded that “stronger and timelier supervisory action regarding Members United’s concentration in mortgage-backed securities could have resulted in a reduced loss to the TCCUSF.” The agency also relied too heavily on ratings agencies, the report said.
In response, NCUA Executive Director David Marquis wrote that the recent sets of changes to the corporate credit union regulations approved by the NCUA board are aimed at preventing a recurrence of many of the problems at Members United and the other corporate credit unions. He added that the agency is exploring whether to develop additional risk-monitoring procedures to help examiners identify changes in a corporate credit union’s risk exposures.
To read the report, go to: http://www.ncua.gov/Resources/OIG/MaterialLossReviews.aspx