WASHINGTON — Credit unions are working with the Treasury Department and the NCUA to find an alternative funding source in light of the Bush administration's decision to put on hold the plan to buy the troubled mortgages of financial institutions.
“Although the number of credit unions who would participate is fairly small, those that have bad assets need the help. Perhaps it can be done through NCUA's share insurance fund,” said CUNA Chief Economist Bill Hampel.
NCUA Chairman Michael E. Fryzel said he was working with the Treasury Department to ensure credit unions have access to the government's programs in this area.
“Today's announcement by [Treasury] Secretary [Henry] Paulson represents a departure from the anticipated form and content of the troubled assets relief program as set forth in the Emergency Economic Stabilization Act signed into law last month. In light of this, I am in the process of contacting the secretary to ensure that whatever form TARP takes will be appropriate and useful for credit unions and their members,” Fryzel said in a statement last Wednesday.
Paulson announced earlier that day that the government would not be buying troubled assets and instead infuse more capital into financial institutions and other companies via stock purchases. “Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchases can play a useful role, relative to other potential uses of TARP resources,” he said.
NAFCU Senior Vice President of Government Affairs B. Dan Berger said his association is “is strongly urging Treasury to utilize the funds for its congressional intent.”
The prospect of the government purchasing bad mortgages was a key selling point among skeptical lawmakers during the congressional fight over the $700 billion plan in September and October. The majority of TARP funds used so far ($250 billion) has gone for government purchases of preferred stock in banks, with the hope that they will use the money to make more loans.
The vote on the bill was raised as an issue in several close elections earlier this month and some lawmakers defended their votes by saying that having the government buying troubled assets would in the long run help the economy.
CUNA Senior Vice President/Deputy General Counsel Mary Mitchell Dunn said another negative effect of the Bush administration's decision is its impact on the value of some credit union and bank assets.
“We were encouraged by the asset purchase plan because it would put a floor on the value of troubled mortgages. That is an important consideration and we are hoping that we will find a way to resolve it,” she said.
The two top Democrats on the House Financial Services Committee each emphasized different effects of Paulson's decision.
“We have a need to use that funding,” Chairman Barney Frank (D-Mass.) said during a hearing. He was one of the measure's key backers in the House and has long argued that buying troubled assets would be an effective way to help struggling financial institutions get back on their feet.
Rep. Paul Kanjorski (D-Pa.), the panel's No. 2 Democrat, also backed the original measure (and was criticized by his opponent for it during his recent reelection campaign) but said the change makes good sense, from an investment perspective
“We have a limited amount of money to spend, and if you put money into equity, it multiplies. If you buy a troubled asset and keep it on the shelf for a while, it doesn't make money during that time,” he said in an interview with Credit Union Times.
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