New Idea: Mutual Fund of Credit Union Loans
The NCUA is currently considering amendments to Part 703, the investment regulation. NCUA has not yet issued proposed changes. If you agree that the following idea is worth including in the investment regulation, I ask you to express your support to the NCUA.
Many credit unions are at risk due to the inability to earn sufficient net income to pay the assessments for the share insurance fund and to rebuild capital that was lost due to the corporate credit unions collapse, the real estate crash and the continuing crisis of confidence by consumers. The permissible investment options provide anemic returns. Credit unions have to chase loan yield to survive in the long term. How do credit unions with low loan demand safely earn loan yield?
There are multiple highly qualified third parties reviewing the quality of the loans purchased in the fund. The buyers of loan participations may or may not have know what they are buying.
The loan performance risks in a fund are spread over hundreds of loans. If a loan defaults in the fund, the fund’s investment performance is marginally affected. If a loan goes bad in a loan participation, credit union assets are lost.