ALEXANDRIA, Va. — NCUA Chairman Michael E. Fryzel said any program to buy bad mortgages from credit unions should not be financed by the NCUSIF, but by the Treasury Department’s Troubled Asset Relief Program.
“That is not something I believe in and do not regard that as something we are going to do,” he said in an interview with Credit Union Times. “The share insurance fund is for the protection of shares of individuals who have their funds in the credit unions. There are almost 90 million people in this country who have their money in credit unions, and that fund is there to protect their deposits. It’s not for the use of purchasing troubled assets.”
CUNA had advocated such a program, saying that having credit unions take care of their own problems, rather than relying on federal funds, could help persuade Congress that credit unions shouldn’t be lumped in with other financial institutions when the regulatory system is restructured next year.
Fryzel rejected that link.
“When Congress changes the regulatory structure next year, which I believe they will, if they carve out an exemption for credit unions, they will do so because they believe that the regulation of credit unions has been the type of regulation that should be the model for other financial institutions,” he said.
Fryzel said he is “very frustrated” that Treasury Secretary Henry Paulson has not used TARP funds as Congress intended, and he would continue to try to persuade him to change his mind so credit unions have access to funds, which hopefully they won’t need.
CUNA Executive Vice President and General Counsel Eric Richard said his association would continue to come up with another industry-based solution.
“In our view, the important thing is for NCUA and credit unions to be as flexible as possible in considering courses of action. We will continue to pursue these issues with NCUA, the new administration and others. We are convinced, based on input from credit unions, that a movement-funded solution to credit union challenges-rather than a taxpayer-funded approach-makes the best sense,” he said in a statement.
NAFCU President/CEO Fred Becker, whose association has strongly opposed using the share insurance fund to buy illiquid assets, praised Fryzel’s decision.
“Our board met and discussed the possible use of the share insurance fund for a TARP-like program last September,” he said. “We have been and remain in opposition to the use of the share insurance for this purpose. We do, however, support the use of the Central Liquidity Facility for such a purpose, as has been requested by Chairman Fryzel. Finally, we thank Chairman Fryzel for his support on this issue.”
Dealing with TARP has been one of the many policy balls that Fryzel has had to juggle, since he was sworn in on July 26.

Fryzel predicted the problems facing the economy in general and credit unions in particular will get worse before they improve.
“We haven’t seen the full extent of it,” he said. “We are going to carry well into 2009 struggling and it’s going to take another full 11 or 12 months before we see things turn around.”
He noted a potential source of problems for credit unions could be members’ increased difficulties in making credit card payments. While credit cards are a small portion of most credit unions’ debt portfolios, if you combine them with the woes of the housing market, you can have serious difficulties, he added.
In 2009, a lot of financial institutions and retailers “are not going to make it” and the number of credit unions liquidated “won’t be any less than we’ve seen this year.” Through Dec. 17, there had been 14 federally insured credit unions liquidated in 2008.
For all the reasons above, Fryzel launched initiatives to strengthen the examination process and provide relief to credit union members having trouble with their mortgages and to corporate credit unions.
Since Fryzel has been in office, the NCUA approved a revamped examination schedule to reduce the time period between exams, launched a program to help credit unions provide mortgage relief and created a loan program for corporate credit unions.
He said early this year the NCUA will put together a legislative package to send to Congress that will deal with issues such as capital reform. He declined to state what positions they will take on that, and other industry priorities such as raising or eliminating the cap on member business loans.
Fryzel also said he has not had any conversations with President-elect Obama’s transition team about whether he will be reappointed as chairman. He noted that Obama has “more pressing problems” than the NCUA but when he gets around it “he’ll be as supportive of credit unions as he has been.”