Magazine article American Banker

Debate on Curbing Credit Unions' Use of Mortgage-Backed Securities

Magazine article American Banker

Debate on Curbing Credit Unions' Use of Mortgage-Backed Securities

Article excerpt

A move to sharply curtail mortgage securities investments by credit unions is getting mixed reviews from Wall Street.

Some market executives say the proposed limits - which the National Credit Union Administration plans to consider at its January board meeting - would deprive Wall Street of a small but profitable clientele. The Bond Market Trade Association, formerly known as the Public Securities Association, has denounced the NCUA's plan as an "arbitrary," one-size fits- all solution.

But others say the collapse last year of a large corporate credit union had that invested heavily in mortgage instruments - Capital Corporate Credit Union of Lanham, Md. - hurt the mortgage market's reputation and underscored the corporates' lack of financial sophistication.

By getting marginal players out of the market, "you prevent disasters that make the mortgage industry look bad," asserted Linda Lowell, a first vice president at PaineWebber Inc.

The NCUA - which regulates 11,000 federally and state-chartered credit unions and the 41 corporate credit unions that oversee their investments was thinking of limiting mortgage investments even before the Capital Corporate failure, a spokeswoman said. But the agency, based in Alexandria, Va., stepped up scrutiny of mortgage investments after the collapse, which cost 250 member credit unions $23 million.

By any measure, credit unions are bit players in the $1.6 trillion market for mortgage securities. Their mortgage bond accounts at corporate credit unions hold just $4. …

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