Buried on page 16 of a recent report from the NCUA’s Inspector General – innocuously titled "Semi-Annual Report to Congress, October 1, 2010 - March 31, 2011" – is this bombshell: “NCUA determined that the Constitution, Members United and Southwest Corporate credit unions’ portfolios were reasonably likely to sustain credit losses amounting to approximately $145 million, $400 million and $980 million, respectively.”
The same report, which sources indicated simply appeared with no notice or fanfare on an NCUA Web page, indicated that losses for U.S. Central and WesCorp are expected to be much higher still.
For now, however, in regard to U.S. Central the NCUA report noted: “We determined U.S. Central’s management and Board failed to recognize the substantial risk they undertook with significant investments in complex mortgage-backed securities collateralized by subprime assets. We also determined management allowed the investments in mortgage-backed products to represent a significant concentration compared to net worth and failed to impose prudent limits in these securities.”
NCUA itself came in for criticism here: “We believe NCUA staff should have recognized the risk exposure that U.S. Central’s significant concentration in mortgage backed securities represented earlier than 2007 and 2008.”
As for WesCorp, the report said: “WesCorp management’s actions contributed directly to conditions that resulted in NCUA placing the corporate under federal conservatorship on March 20, 2009 and an expected loss to the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) of $5.59 billion.”
Credit union consultant Marvin Umholtz, in reviewing these numbers, noted: “The Constitution loss was higher than anticipated. The Members United seemed lower than expected. The losses taken together are sizable.”
He added: “I don’t think that many people have seen these numbers. They may be surprised when they do see them.”