WASHINGTON — The Central Liquidity Facility's new Credit UnionSystem Investment Program and Credit Union Homeowners AffordabilityRelief Program are off and running, with the Central LiquidityFacility settling $164 million in CU HARP funds Jan. 2, and $4.9billion in CU SIP funds Jan. 9.
CU HARP was designed to help credit unions rework member mortgagesand signed up $164 million worth of takers. The number fell farshort of the agency's $2 billion cap and doesn't appear to havehelped the estimated 10,000 households the NCUA said it hoped wouldbenefit from the measure.
Some have criticized the plan for appealing to a limited number oflarge credit unions; by the NCUA's own estimation, only about 600credit unions
were eligible by design, “for efficiency purposes,” said SteveSherrod, CLF
vice president.
“The minimum note size was $1 million, based upon a qualifyingcredit union having $1 million in delinquent first mortgages,” hesaid, “and there just aren't that many that do.”
Robert Graeff, president/CEO of the $28 million Delta SchoolsFederal Credit Union in Antioch, Calif., said he understands thatlarge credit unions are the ones feeling the real estate pinch themost. Delta Schools does offer both first and second mortgages, buthe's only taken one loss so far and it's possible he'll recoverpart of it.
However, Graeff said real estate delinquencies are still a bigenough problem in small and mid-sized credit unions that they needan agency-sponsored program, too.
“A small credit union is just as needed by its membership as alarge one,” Graeff said. “We serve a purpose; not everyone wantsthe Bank of America experience. Our members want to be greeted byname and work with an institution that makes decisions based notjust on numbers, but on the relationship they've had with us overthe years.”
He added that contrary to popular belief, many small credit unionshave relatively large mortgage portfolios, and it's only fair thatgovernment programs benefit all sizes of institutions.
Phil Poehler, chief lending officer at the $210 million PrevailCredit Union, said he had some initial interest in CU HARP,although his Seattle-based institution has suffered limited realestate losses. Prevail operates a robust real estate shop andcounts $62 million in real estate loans on its books. Currently,four properties are in foreclosure, and its real estate loansaverage $220,000.
However, when Poehler started researching CU HARP, he said itseemed like more trouble than it was worth.
“It just wasn't that clear, and without putting a lot of time intoit, I couldn't see what value it would bring to our members, evenif we were having problems,” he said.
NCUA Spokesman John McKechnie said that, as a safety and soundnessregulator, the NCUA didn't set benchmarks for the program, andsimply provided what credit unions said they needed.
Sherrod added that he thinks CU HARP's small initial draw amount isa good sign that credit unions are successfully working outdelinquency problems on their own.
“Chairman Fryzel has said on numerous occasions that he willprovide the tools needed to deal with any balance sheet problems,”McKechnie said.
McKechnie also said the agency does not plan on making adjustmentsto the program so more credit unions can qualify, but added that“time will tell how many members are assisted by HARP” and “theprogram is very much still in its infancy.”
CU SIP was designed to help corporate credit unions pay downexternal borrowings from sources like the Federal Home Loan Banksusing advances taken by natural person credit unions from the CLF.Natural person credit unions reinvest the CLF advance in corporatecertificates, and earn a 10 basis point income.
CU SIP will initiate additional monthly advances over the next sixmonths.
“The original design of the program was to do a ladder of one-yearborrowings that would mature, sequentially, over six months,”Sherrod said. He said he isn't speculating how much corporates willrequest between now and June, but noted the program requires a $500million minimum monthly draw.
Paying down external debt frees up collateralized assets.Corporates have experienced a liquidity squeeze over the past yearas their assets have decreased, thanks to declining asset-backedsecurities values and fewer deposits from natural person creditunion members, who need to account for their own losses whilecontinuing to fund member loans.
“Corporate-owned, asset-backed securities have principal reductionseach month, so we're anticipating as those securities have paydowns, corporates would repay their borrowings as they come due,”Sherrod said, adding that using SIP funds to pay down liquiditylines was a condition of CU SIP participation.
McKechnie said he's confident his corporate regulators willeffectively track where CU SIP funds go, adding that somecorporates have NCUA examiners on site.
Only two corporates participated in the initial draw, U.S. CentralFCU and Western Corporate FCU.
When the CU SIP program was first announced, Members UnitedCorporate FCU Chief Marketing Officer Victor Vrigian told CreditUnion Times his corporate was still reviewing the details, but “Idon't know why we wouldn't want to participate.”
However, Vrigian said Members United changed its mind because theprogram wasn't a good fit. “The program requires participatingcorporates to retire existing debt and in a specific priorityorder: Federal Reserve Discount Window borrowings until reduced tozero, then FHLB borrowings, then other qualifying debt,” he said.“Based on the size of the initial offering and the fact that wehave no discount window debt-while others in the network do andcould benefit from CU SIP-and, the cost increase to Members Unitedof using SIP proceeds to retire the FHLB debt on Members United'sbooks, we chose not to bid for CU SIP in the first round.”
However, Vrigian said some Members United members wanted toparticipate in CU SIP's initial draw, so the corporate referredthem to WesCorp.
“The corporates worked as a system to generate interest andprocessed requests for participation by natural person creditunions,” Vrigian said. “Independently, each corporate decidedwhether to participate based on what made sense for their balancesheets.”
He added that Members United may participate in future months ifit's in the best interest of its members.–[email protected]