WASHINGTON — Credit unions are working with the TreasuryDepartment and the NCUA to find an alternative funding source inlight of the Bush administration's decision to put on hold the planto buy the troubled mortgages of financial institutions.

“Although the number of credit unions who would participate isfairly small, those that have bad assets need the help. Perhaps itcan be done through NCUA's share insurance fund,” said CUNA ChiefEconomist Bill Hampel.

NCUA Chairman Michael E. Fryzel said he was working with theTreasury Department to ensure credit unions have access to thegovernment's programs in this area.

“Today's announcement by [Treasury] Secretary [Henry] Paulsonrepresents a departure from the anticipated form and content of thetroubled assets relief program as set forth in the EmergencyEconomic Stabilization Act signed into law last month. In light ofthis, I am in the process of contacting the secretary to ensurethat whatever form TARP takes will be appropriate and useful forcredit unions and their members,” Fryzel said in a statement lastWednesday.

Paulson announced earlier that day that the government would notbe buying troubled assets and instead infuse more capital intofinancial institutions and other companies via stock purchases.“Our assessment at this time is that this is not the most effectiveway to use TARP funds, but we will continue to examine whethertargeted forms of asset purchases can play a useful role, relativeto other potential uses of TARP resources,” he said.

NAFCU Senior Vice President of Government Affairs B. Dan Bergersaid his association is “is strongly urging Treasury to utilize thefunds for its congressional intent.”

The prospect of the government purchasing bad mortgages was akey selling point among skeptical lawmakers during thecongressional fight over the $700 billion plan in September andOctober. The majority of TARP funds used so far ($250 billion) hasgone for government purchases of preferred stock in banks, with thehope that they will use the money to make more loans.

The vote on the bill was raised as an issue in several closeelections earlier this month and some lawmakers defended theirvotes by saying that having the government buying troubled assetswould in the long run help the economy.

CUNA Senior Vice President/Deputy General Counsel Mary MitchellDunn said another negative effect of the Bush administration'sdecision is its impact on the value of some credit union and bankassets.

“We were encouraged by the asset purchase plan because it wouldput a floor on the value of troubled mortgages. That is animportant consideration and we are hoping that we will find a wayto resolve it,” she said.

The two top Democrats on the House Financial Services Committeeeach emphasized different effects of Paulson's decision.

“We have a need to use that funding,” Chairman Barney Frank(D-Mass.) said during a hearing. He was one of the measure's keybackers in the House and has long argued that buying troubledassets would be an effective way to help struggling financialinstitutions get back on their feet.

Rep. Paul Kanjorski (D-Pa.), the panel's No. 2 Democrat, alsobacked the original measure (and was criticized by his opponent forit during his recent reelection campaign) but said the change makesgood sense, from an investment perspective

“We have a limited amount of money to spend, and if you putmoney into equity, it multiplies. If you buy a troubled asset andkeep it on the shelf for a while, it doesn't make money during thattime,” he said in an interview with Credit Union Times.

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