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WASHINGTON — With the Bush administration still reluctant to use Troubled Asset Relief Program funds to buy bad mortgages, the NCUA and the credit union trade associations are still trying-so far with minimal success-to come up with an alternative way to help credit unions.The NCUA has so far received no response for its request to get some of the TARP funds so it could buy assets from some credit unions. Agency spokesman John McKechnie said the proposal, which NCUA Chairman Michael E. Fryzel unveiled last month, is “working its way through the channels” at the Treasury Department and the Federal Reserve. Fryzel asked key lawmakers to encourage the Treasury Department and Fed to back his proposal and said it “would be of significant and tangible benefit to credit unions.”Both CUNA and NAFCU have praised Fryzel’s actions, but the trade associations have different views of the best solution.NAFCU sees Fryzel’s plan as the most effective best way for credit unions that have troubled assets to get access to capital infusions.In contrast, CUNA thinks that approach should be available only as a fallback position and instead credit unions should first try to solve it through the National Credit Union Share Insurance Fund.McKechnie said his agency hasn’t taken a position on whether to use the share insurance program.“The Board has directed NCUA staff to develop a range of approaches for use in mitigating the market difficulties that some credit unions are experiencing. At this juncture, plans are not yet finalized,” he said.NAFCU says while that it hopes few, if any, members have to take advantage of TARP, it would be the most cost-effective way to solve the problem and would be in keeping with Congress’ intent when it passed the measure in October.It also has concerns about tapping into the share insurance fund.“The insurance fund is designed to protect member deposits, and if that is compromised, people will be concerned that the backstop firewall is weakened,” said NAFCU Director of Legislative Affairs Brad Thaler.But CUNA said using the insurance fund would show that credit unions are dealing with the problem in house, which could make Congress and the new administration less likely to sweep credit unions with other financial institutions when they restructure the regulatory system next year.“The amount of capital needed would require at most a 10 basis point increase in the premium cost of the program, and most credit unions won’t mind paying it to keep credit unions in stronger shape,” said CUNA Senior Vice President of Research and Policy Analysis and Chief Economist Bill Hampel. “A little bit of proactive recapitalization of credit unions would be better than paying higher resolution costs later.”So far, Treasury Secretary Henry Paulson has only used TARP funds to inject capital through purchasing shares of financial institutions and has shifted away from the his original plan to use some of the funds to buy bad mortgages. Those financial institutions have used the majority of their new funds to fund the purchase of other banks or for executive salaries, rather than using it to get more credit flowing to businesses.But in recent weeks the Fed and Treasury Department have taken additional steps to help financial institutions.The Federal Reserve announced it will buy $100 billion worth of debt from Fannie Mae and Freddie Mac and buy mortgage-backed securities valued at $500 billion. It will also plan lend up to $200 billion to holders of securities backed by consumer loans. The Treasury Department will also provide $20 billion in credit protection from TARP.But Paulson has not announced whether he will ask Congress to release the additional $350 billion allocated for TARP, which could be the source of some of the funds used to purchase credit unions troubled assets. President-elect Barack Obama has not yet said how his administration would use the additional TARP money.“I can assure you that my team is very active in reviewing what’s already been done to ensure that when we hit the ground running on January 20th that any taxpayer money is going to be properly spent,” he said at a news conference last Wednesday.–[email protected]

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