ALEXANDRIA, Va. — NCUA issued a guidance letter to corporate credit unions today alerting corporate credit unions to housing concerns affecting mortgage backed securities.
The letter (No. 2007-02) highlights credit quality and market value concerns with mortgage backed securities with underlying subprime or nontraditional mortgages and/or structured with an available funds cap. It also directs corporates to letter No. 2003-01 for policy requirements for credit concentrations and credit monitoring.
"Problems recently reported with underwriting and servicing of many sub-prime and non-traditional loans intensify the need for adequate monitoring of MBS by management, since such loans may have been securitized," the letter signed by Office of Corporate Credit Unions Director Kent Buckham stated.
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To ensure prompt identification of risks, corporates should require appropriate pre-purchase analysis and ongoing monitoring of MBS to control material exposures to credit risk, market value risk arising from AFC, and concentration risk to a single originator or servicer.
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