ALEXANDRIA, Va. – NCUA said this morning it lowered its loss projections for the corporate credit union resolution by as much as $400 million, due to improved performance by bonds associated with the bailout.
NCUA’s most recent loss projections included an upper range of as much as $21 billion, but the “latest forecasts indicate that the top end of the range of total Stabilization Fund assessments has declined by $400 million during the last six months,” said NCUA Chairman Debbie Matz.
NCUA’s projections include final losses on $50 billion of legacy assets, mostly mortgage-backed securities, owned by five failed corporates, as well as $5.6 billion of capital wiped out when NCUA liquidated the five: U.S. Central FCU, WesCorp FCU, Members United Corporate FCU, Southwest Corporate FCU and Constitution Corporate FCU. NCUA has re-securitized the MBS and sold them to public investors as federally guaranteed NCUA Guaranteed Bonds, or NGNs.
Federally insured credit unions have paid a total of $4.1 billion in corporate assessments to fund the bailout so far. The addition of the $5.6 billion of lost capital means the bailout has cost $10.7 billion so far.
As a result of the updated estimates, total future assessments to credit unions are projected to range between $1.9 billion and $4.8 billion. The assessments are expected to run until 2021, when the resolution approved by Congress expires.
The narrower range of projected remaining assessments reflects the actual performance of the legacy assets to date and NCUA’s updated assessment of the macroeconomic factors used in projecting the future performance of NGNs. Forecasting borrower behavior and changes in the economic environment is challenging. Factors influencing the estimated range include changes in housing prices, interest rates, unemployment rates and mortgage prepayments.
NCUA uses BlackRock, an independent securities valuation firm, to project the future performance of the legacy assets in the NGNs.
The lower projections also take into consideration the $170 million in out-of-court settlements NCUA has recovered from three Wall Street banks that sold MBS to the failed corporates and the possibility that seven additional MBS suits will reap recoveries.