Bill Cheney, president/CEO of the California and Nevada Credit Union Leagues, said it remains to be seen whether credit unions will take advantage of the available TARP funds. Rather, he's seeing credit unions develop strategies to deal with mortgage-related losses internally.

"Credit unions have never needed government bail out money," Cheney said. "The share insurance fund has worked well, credit unions are well-capitalized, and the system is working as it should, so I think the hope is that we can address issues internally."

However, Cheney added that it was important for credit unions to be included among institutions eligible for the program, regardless of whether any elect to participate.

Even though the Bush administration emphasized its plans to buy bad mortgages when it sold the financial rescue package to Congress, it has mostly used money to buy shares of big banks, some of which have used many of the funds to buy other banks, rather than to lend money.

"The banks that caused this problem shouldn't be allowed to get bigger and richer. They shouldn't gobble up other banks, it's not Thanksgiving yet," said NAFCU President Fred Becker.

CUNA Deputy General Counsel Mary Dunn said CUNA hopes the Treasury Department will devise a program to allow mutual thrift institutions and credit unions to take advantage of a share purchase-type arrangement. She said current laws allow mutual savings banks to issue subordinated debt; credit unions can do it but it doesn't affect their net worth.

Credit unions are also eligible to participate in the new FHA program that debuted Oct. 1, Hope for Homeowners (see news brief, page 40). Under the program, eligible homeowners can refinance their current mortgage into an FHA-insured mortgage.

Participation in the program is voluntary for FHA-approved lenders and includes controversial shared equity and appreciation requirements.

Cheney said the program sounds interesting to him, and if he were a homeowner in a dire situation, he'd be willing to give up part of future equity gains.

"Absolutely, people are asking the league about how to participate in some of these new programs, including the FHA program, but we're still trying to figure out the details," Cheney said. "It sounds good, but as they say, 'the devil's in the details,' and we don't have all the details yet."

U.S. Rep. Brad Sherman (D-Calif.) touted H4H as a way credit unions can participate in the recovery process. Sherman said struggling homeowners can be divided into three basic categories: those who may be upside down on their mortgages but can afford their loans, have good jobs and will continue to make payments; those who never qualified for their loans in the first place and are beyond refinancing help; and those who can't afford their current loan but can afford their home and could benefit from refinancing. The FHA plan was designed to help the third group, Sherman said.

"Certainly, there are mortgage holders who will participate in the Hope for Homeowners program, and in many cases, lenders will have to write down the value of the mortgage; but, in exchange, they'll get an FHA guarantee," Sherman said.

But Linda Clampitt, President/CEO of CU Members Mortgage, said her firm isn't going to offer the H4H program, even though they are actively recommending other FHA programs to their credit union clients.

"We have chosen not to offer it, with the main reason being we can't sell those loans in a Ginny Mae pool," Clampitt said. "There's a lot that hasn't been clarified yet regarding that program, and [that] makes lenders nervous."

Clampitt said she's had credit unions asking about the program, but to her knowledge, none of her clients have pursued the program elsewhere.

CUNA and NAFCU both want the government to insure losses for loans and mortgage-backed securities for participating institutions.

Both trade associations and the NCUA are also urging the Treasury Department to authorize the NCUSIF to provide full insurance for all noninterest bearing business accounts. Last month, as a way to bolster the economy, the FDIC said that through 2009 all noninterest bearing business accounts would be insured no matter how large the account.

Approximately 5,000 credit unions offer those kinds of accounts.

Credit unions are also working Capitol Hill to find ways to get additional capital. While in the past the trade associations have called their efforts regulatory relief, these days they frame it in terms of "capital infusion."

CUNA and NAFCU are trying to get their long-time priorities–risk-based capital and raising the cap on member business loans–included in the economic stimulus legislation that Congress may consider during a lame duck session later this month.

"We are ready to part of the solution to the crisis and giving us more money to lend will help us achieve that," Becker said.

Cheney said limiting credit union business lending during a credit freeze is absurd, especially because credit unions have the capacity and willingness to lend. He voiced his support for a letter CUNA delivered to the Treasury Oct. 28 that said credit unions stand by ready to lend as much as $10 billion if business lending caps are lifted.

Sherman, who is a member of the House Financial Services Committee, said he hasn't yet heard any credit union lobbyists whispering in his ear about increasing or eliminating credit union member business loan limits, but he expects to. He said, in his opinion, business loans are one way credit unions should participate in the recovery process.

"Credit unions aren't the cause of Wall Street's problems, and they're not the solution for Wall Street, but credit unions are, to some degree, part of the solution for Main Street," Sherman said. "We need to let credit unions be part of solution for business lending, and as far as consumer lending in concerned, credit unions are already there."

Cheney also indicated his support of industry lobbying efforts to seek additional forms of capital.

"I'm not necessarily saying credit unions want to take low-cost capital from the government but do think it's important over the long term for credit unions to have access to alternative sources of capital," Cheney said, adding that industry leaders are mindful that all alternative capital sources must remain true to the member-owned structure of credit unions.

"Today, the only credit unions that can raise secondary capital are corporates and low-income credit unions," Cheney said. "That's the bad news, but the good news is we can use those models to expand it to all credit unions."

The Senate could still pass the Credit Union Bank and Thrift Regulatory Relief Act (H.R. 6318), which the House passed in June. It would grandfather existing approvals of underserved areas and allow federal credit unions to apply to serve underserved areas outside their field of membership. Loans in those communities and to religious, nonprofit institutions would not count against their member business lending cap. It would also permit credit unions to provide short-term unsecured loans to anyone in their field of membership.

But Bert Ely, a financial services consultant, said credit unions should not draw too much attention to themselves.

"Credit unions have to be careful. If they get too big or significant, they'll be asked, 'Why aren't you taxed?' And the government needs revenue to close deficits," he said.

A Washington insider, who declined to be named, said, "People on the Hill who are genuine friends of credit unions are talking to us and saying, 'This is an opportunity for you to differentiate yourselves from banks and stay out of these bail out discussions, and instead, focus on the solutions you provide for Main Street.'"

"They don't want to see credit unions participate in the bailout. It would mean opening up issues regarding taxation, and if credit unions don't participate, it will help credit unions get what they want down the road."

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