Federal regulators took over three key lenders to U.S. credit unions, including one based in Wallingford, after losses on mortgage investments threatened to topple them, The Associated Press reports.
The National Credit Union Administration voted Friday to place into conservatorship three corporate credit unions: Members United Corporate Federal Credit Union of Warrenville, Ill; Southwest Corporate Federal Credit Union of Plano, Texas; and Constitution Corporate Federal Credit Union of Wallingford, Conn.
Conservatorship allows the government to run financial companies while keeping them open. The government will replace the companies’ executives and boards. The companies will be shuttered, and their parts sold off to recoup losses.
The Hartford Business Journal reported in June 2009 that Constitution Corporate was facing major financial woes, including tens of millions of dollars in credit losses related to sour investments in mortgage-backed securities.
Constitution Corporate Federal Credit Union serves as a federal reserve-like bank to credit unions principally in Connecticut, providing wholesale financing and investment services.
Tony Emerson, president and CEO of the Credit Union League of Connecticut, said the “NCUA has made assurances that current ongoing operations at Constitution Corporate are not affected and will continue as usual
“The Credit Union League of Connecticut will be working with the NCUA and Constitution Corporate to ensure that member credit unions are not adversely affected by this conservatorship action, and to let them as well as their members know that their deposits are fully insured and safe.”
Corporate credit unions made big bets on commercial and residential mortgage investments before the housing market collapsed. The bonds lost much of their value, leaving corporate credit unions with too little cash to cover unexpected losses. Regulators decided they could not be saved.
The government will repackage $50 billion worth of toxic bonds from the companies it seized. New investments worth about $35 billion will be sold to private buyers. The government will guarantee them against losses.
Officials said the plan will not cost taxpayers any money. The losses will be repaid with fees collected from credit unions, they said.
The NCUA has borrowed billions from the Treasury to stabilize corporate credit unions. Treasury agreed to extend that loan through June 30, 2021, the NCUA said. That gives retail credit unions more time to spread out the cost of repaying.
The NCUA has taken over five of the largest wholesale credit unions since March 2009. They account for 70 percent of the total assets of corporate credit unions, and 98 percent of the assets that lost value.
The two largest companies were taken over last year. The three seized Friday also suffered big losses during the global credit collapse. Officials said they were kept open because of their importance to retail credit unions.
“They weren’t just out there operating,” said Deborah Matz, chairman of the NCUA. “We were working very, very closely with their management to monitor their activities.”
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HBJ staff writer Greg Bordonaro contributed to this report
