Estimated Minimum Legacy Asset Losses Increase $800 Million
According to new information released online today by the NCUA, the conservative end of estimated corporate legacy asset losses financed by Temporary Corporate Credit Union Stabilization Fund increased to $2.7 billion as of December 31, 2011, up from $1.9 billion as of June 2011.
That means federally insured credit unions could be on the hook for an additional $800 million, which will be paid through assessments until the fund expires in 2021. On the bright side, the high end of estimated losses decreased by $200 million during the same period, falling to $6.0 billion. Altogether, the estimated range of legacy asset losses is between $2.7 billion and $6.0 billion.
Despite updating the range of the Stabilization Fund loss estimates, the projected range of 2012 Stabilization Fund assessments — between 8 and 11 basis points of insured shares — remains the same. The NCUA Board anticipates setting the 2012 Stabilization Fund assessment at the open Board meeting scheduled for July 24.
The NCUA uses BlackRock, an independent securities valuation firm, to project the future performance of the legacy assets in the NCUA Guaranteed Notes, a key component of the analysis.
The NCUA credited the loss range adjustments to changing economic and market conditions, which include changes in housing prices, interest rates, unemployment rates, and mortgage prepayments.
“When launching the Corporate Resolution System Costs and NGN Program Information webpages six months ago, NCUA committed to periodically updating the estimates of projected corporate losses, which will change over time. The latest estimates show that the range of future Stabilization Fund estimates has narrowed,” said NCUA Board Chairman Debbie Matz. “The estimated range of losses is now between $2.7 billion and $6.0 billion. The narrower range of projected remaining assessments reflects the actual performance of the legacy assets to date and BlackRock’s updated assessment of the macroeconomic factors used in projecting future performance.”
The updated range also includes the net proceeds from legal recoveries that NCUA had received from Wall Street securities firms as of Dec. 31, 2011. By lowering the cumulative total costs of losses of the Stabilization Fund, these recoveries help reduce the assessments that credit unions will need to pay over time.
In addition to the latest estimate of the range of projected corporate losses, data posted online at the NCUA’s website now includes:
- Background on NCUA’s borrowings from and payments to the U.S. Treasury associated with the Stabilization Fund;
- Information on the projected performance of the NGN Program’s legacy assets, which are the distressed investment securities from the five corporate credit unions that failed in 2009 and 2010;
- Details about the performance of non-agency, residential mortgage-backed securities in the legacy assets, including delinquency rates, state concentrations, and year of issuance;
- Graphics on the Stabilization Fund’s net position, compared to anticipated remaining assessments; and
- Frequently asked questions about both initiatives.
NCUA will continue to publish updated information on the Corporate System Resolution and the NGN Program semi-annually over the life of the Stabilization Fund. The webpages are available at www.ncua.gov by going to the tab on “Credit Union Resources and Information” and then clicking on the links for “Corporate System Resolution Costs” and “NGN Program Information.”