Questions for the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit regarding HR 2351, the Credit Union Share Insurance Stabilization Act

Credit unions are demonstrating their unique role by providing
funding for mortgage, consumer and student loans at a record pace
despite ongoing economic uncertainty. However, NCUA’s approach to the
Corporate Credit Union Network situation, which requires credit unions
to record expenses based on estimated future losses, imposes an
unnecessary burden on credit unions’ ability to continue meeting the
needs of their members and communities. Imposing such a burden at this
time will only inhibit the economic recovery.
Issue #1
NCUA spokespersons have used widely varying estimates of the potential
losses from the Corporate Credit Union Network. These have ranged from
$40-$50 billion (John Kutchey- Acting Director of Examination and
Insurance in a NAFCU webinar), to $7, $10, or $16 billion depending
which PIMCO scenario is used (Dave Marquis, NCUA’s Executive Director),
to $4.7 billion (NCUA’s initial system costs on January 28, 2009).

• Have any actual losses been incurred to date on WesCorp's or U.S. Central's securities?
• What are the "modeling" details that are the basis for these various loss estimates?
• How can NCUA be certain that their "final" estimate of losses is correct?
• Why
  is NCUA directing credit unions to incur these expenses, which will
  inhibit their ability to continue maximizing the services they provide
  to members, based on projections at all? Why not assess insurance
  premiums as losses are actually incurred?

Issue #2
If the NCUA draws upon the full $30 billion borrowing authority allowed
by the legislation, the indebtedness would be equivalent to over 12
times the total 2008 net income for all credit unions. As passed, all
borrowings would be repaid by NCUSIF premiums in future years, further
encumbering the earnings of credit unions.

• What steps is NCUA going to take to ensure that the
  lowest cost outcome is pursued? What checks will be in place to
  validate that this is occurring?
• Earnings are credit
  unions' only source of capital. If NCUA's borrowings go beyond initial
  estimates, it could put credit unions in the position of potentially
  having no capital creating capability for years into the future. Do
  credit unions need legislative authority to issue a new class of shares
  to members that would function as capital?

Issue #3
In March 2008, WesCorp management classified a portion of its
'available-for-sale' portfolio as 'held-to-maturity'. Last month, NCUA
disclosed in WesCorp's financial release that this decision is being
reversed effective December 31, 2008. However, the very same footnote
goes on to state, "it is our intent to hold these securities to
maturity."

• Why did the classification of these securities change if the investment intent did not change?
• The
  decision to reclassify means that an other-than-temporary impairment
  (OTTI) charge, estimated at $5.6 billion, be recorded in the year-end
  audit. This decision will extinguish all member capital at WesCorp,
  further hindering their ability to meet consumer needs. Why was this
  approach taken by NCUA?

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Subcommittee on Financial Institutions and Consumer Credit
Chairman: Rep. Luis V. Gutierrez (IL)
Capitol Hill Office
Address: 2266 Rayburn House Office Bldg.
Washington, D.C. 20515
Phone: 202-225-8203
District Office
Address: 2201 W. North Ave.
Chicago, IL 60647
Phone: 773-342-0774
Committee Members:
 
Rep. Carolyn Maloney (NY)
Rep. Melvin L. Watt (NC)
Rep. Gary Ackerman (NY)
Rep. Brad Sherman (CA)
Rep. Dennis Moore (KS)
Rep. Paul Kanjorski (PA)
Rep. Maxine Waters (CA)
Rep. Rubén Hinojosa (TX)
Rep. Carolyn McCarthy (NY)
Rep. Joe Baca (CA)
Rep. Al Green (TX)
Rep. William Lacy Clay (MO)
Rep. Brad Miller (NC)
Rep. David Scott (GA)
Rep. Emanuel Cleaver (MO)
Rep. Melissa Bean (IL)
Rep. Paul W. Hodes (NH)
Rep. Keith Ellison (MN)
Rep. Ron Klein (FL)
Rep. Charles A. Wilson (OH)
Rep. Gregory W. Meeks (NY)
Rep. Bill Foster (IL)
Rep. Ed Perlmutter (CO)
Rep. Jackie Speier (CA)
Rep. Travis Childers (MS)
Rep. Walt Minnick (ID)