Gov't seizes 3 failing wholesale credit unions; will resell $50
B of toxic mortgage bonds
Federal regulators took over three key lenders to U.S. credit
unions, after losses on mortgage investments threatened to topple
them. The move was a reminder that parts of the financial system
are still burdened by the toxic assets two years after the
financial crisis peaked.
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.
Corporate credit unions provide wholesale financing and investment
services for the more than 7,000 U.S. credit unions. They do not
offer retail services to consumers. Most retail credit unions
remain healthy, and will continue operating as normal.
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
Officials said the plan will not cost taxpayers any money. The
losses will be repaid with fees collected from credit unions, they
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
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."
Written by: Daniel Wagner, AP Business