09/28/2012

Re-Remic Deals Back in Picture for NCUA

The National Credit Union Administration is planning to explore a revival of its mortgage-bond resecuritization program.

Details of the effort remain hushed, owing in part to indications that NCUA officials have yet to hold formal discussions on the matter. However, word has it that the initiative would mimic an earlier program under which the insurer sold $24.6 billion of bonds underpinned by private-label mortgages it took over from failed credit unions.

Those deals, stemming from a series of credit-union failures in 2009, started hitting the market in October 2010 and continued until June 2011. The proceeds were fed into the NCUA’s credit-crisis-era Temporary Corporate Credit Union Stabilization Fund.

A revived issuing program presumably would serve a similar purpose — to recover capital the NCUA shells out in rescuing troubled credit unions while removing those institutions’ investments from its books. The NCUA has completed a number of resecuritizations involving commercial-mortgage bonds as well.

It appears the NCUA would need to raise less capital this time, given that there have been fewer collapses of credit unions. Six of the insurer’s member institutions have failed this year, although it’s unclear whether they are the source of the investments it might now consider for resecuritization.

One possible obstacle for a resumption of the NCUA’s re-Remic program: The deals carry the full faith and credit of the U.S. Since the insurer last was in the market, its paper has been cut to “AA+” (from “AAA”) by S&P to reflect the agency’s August 2011 downgrade of the nation’s credit rating. Now, with Moody’s threatening a similar move and Fitch maintaining a negative outlook, investors could view any fresh offerings as uncertain bets.

The NCUA supervises credit unions and insures their deposits, much as the FDIC does for banks.

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