WASHINGTON — In the wake of an expected $1.1 billion loss by U.S. Central, the NCUA is infusing $1 billion into the troubled credit union and undertaking a series of efforts to shore up the corporate credit union system.The initiatives, which were announced after a closed meeting last Wednesday, also include a temporary guarantee of $80 billion worth of member shares of U.S. Central by the National Credit Union Share Insurance Fund.The NCUA’s initiative guarantees uninsured shares at all corporate credit unions through February and establishes a voluntary guarantee program for those shares through the end of 2010.To pay for the rescue, the agency will levy a premium of 56 basis points to all credit unions later this year. NCUA Chairman Michael E. Fryzel said the increase will raise the share insurance fund’s equity ratio to 1.30% from its present 1.27%.Fryzel said in an interview that the actions were needed to “instill confidence in the corporate credit union system and ensure that it continues to function.”The NCUA will also hire an outside firm to evaluate every security held by corporate credit unions. The agency may take additional actions after that evaluation, he said.As of Nov. 30, the corporates reported $18 billion in unrealized losses on securities, although the NCUA said in a letter to credit unions that those losses “likely overstate the actual credit losses to be absorbed by corporate credit unions should the securities be held tomaturity.”NAFCU President/CEO Fred Becker said while the problems of the corporates required action, the additional insurance fund premium will hit many natural person credit unions especially hard.“The increase will totally wipe out the ROA for many credit unions next year and further exacerbate their capital challenges. Also, Congress’ likely passage of the cram-down provision on mortgages will also hurt credit unions’ capital situation. The result is that credit unions will be hit with a double whammy,” he said in an interview.CUNA’s task force on corporate credit unions was meeting at press time and formulating its response to the NCUA actions.Brad Miller at the Association of Corporate Credit Unions had not returned calls by press times.On Jan. 26, U.S. Central told the NCUA of its expected losses for 2008 and the agency took action two days later. U.S. Central said the losses are the result of the charges for other-than-temporary impairments of $1.2 billion. In a statement U.S. Central attributed its problems to losses in its portfolio from residential mortgage-backed securities and the “severe illiquidity” of those assets in today’s market.Becker said the crisis that triggered the board’s action highlights the need for additional sources of capital. One option, which was approved by the House, would allow credit unions to include government assistance in the calculation of their net worth, something they currently can’t do.At last week’s meeting, the NCUA Board voted to solicit public input on ways to restructure the corporate credit union system. The agency is seeking suggestions to help regulators take a “comprehensive look at the regulatory and functional structure of the corporate system.” There is a 60-day comment period and the full agency request can be read at www.ncua.gov/RegulationsOpinionsLaws/proposed_regs.The problems of the corporates have been on NCUA’s radar screen for several months. Five days before taking this action, the board approved a proposal to remove Central Liquidity Facility-funded assets from U.S. Central’s books. This was designed to shore up U.S. Central’s capital position and allow it to keep its role as master servicer and the relevant corporates are still servicing the loans.The troubles of corporates are also impacting the health of the share insurance fund and that’s why the agency will levy a premium.The fund’s equity ratio was projected to be 1.27% as the final audit was not completed, according to the NCUA. Congress requires the equity ratio to be 1.2%-1.5%. The NCUA must levy a premium if the ratio drops to 1.2%. Even though the equity ratio is 1.27%, raising it to 1.30% will make more money available to deal with subsequent problems, in light of the widespread economic uncertainty.–[email protected]

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