The NCUA reported late Thursday that the highest estimated amount credit unions have yet to pay in corporate assessments has declined by $900 million.
That leaves just between $1.6 billion and $3.9 billion in assessments yet to pay, the NCUA said in a release.
However, the agency said that won’t mean a reduction in the estimated 2013 corporate assessment, which still remains between 8 and 11 basis points. The exact amount will be revealed sometime this summer during an NCUA Board meeting.
Through 2012, federally insured credit unions have paid $4.1 billion in annual assessments to cover losses incurred by corporate credit union investments into mortgage backed securities.
The reduction means should the forecast hold true, credit unions have paid more than half of corporate resolution costs.
NCUA Chairman Debbie Matz called the decline good news, and said it “reflects an improving economy and NCUA’s continuing efforts to effectively manage losses from the corporate failures to reduce future credit union assessments.”
The narrower range of projected remaining assessments reflects the actual performance of the failed corporate credit unions’ legacy assets to date and updated projections for the future performance of NCUA Guaranteed Notes.
Factors include changes in housing prices, interest rates, unemployment rates and mortgage prepayments. NCUA uses BlackRock, an independent securities valuation firm, to project the future performance of the legacy assets in NGNs, a key component of this analysis.
NCUA Director of Examination and Insurance Larry Fazio told Credit Union Times the board will set future assessments by taking into consideration a number of factors.
They include projected loss ranges, the effect assessments would have on credit union financial reports, and remaining borrowings to the U.S. Treasury worth $5.1 billion. The Treasury’ variable rates are based upon the 1-year Treasury rate, which resets annually, and Fazio said should that rise, it would play into the board’s decision.
Additionally, he said once the NGNs end, there will be some value left to the legacy assets that will become available to be monetized.
Total corporate resolution costs are estimated to be between $11.3 billion and $13.6 billion. In addition to the $4.1 billion in assessments, corporate credit union member capital worth $5.6 billion was also used to recover losses.
In a Q&A sheet released by the agency, the NCUA said through 4th quarter 2012, total corporate legacy assets have incurred $6.1 billion in losses. That number now exceeds the $5.6 billion in capital seized from the five failed corporates, “underscoring that those institutions were insolvent.”
NCUA released the new projections early, previously saying its semi-annual update on legacy asset performance, corporate resolution costs and the performance of NGNs would be available sometime in April.
Updated figures are available on the NCUA’s website.