The National Credit Union Administration plans to offer another $5.48 billion of guaranteed notes next week, its third offering over the past month of bonds created from the cash flows of MBS owned by failed corporate credit unions.
Next week's offering -- which makes a total of $12.15 billion of notes sold by NCUA -- is comprised of cash flows on residential MBS held by U.S. Central Federal Credit Union, and WesCorp Federal Credit Union, and for the first time the more recent corporate failures of Members United Corporate FCU and Southwest Corporate FCU.
As part of the liquidation of U.S. Central and WesCorp, NCUA also sold off $9.5 billion of owned assets by those two corporate giants at steep discounts.
NCUA and the lead underwriter, Barclays Capital, have created a securitization trust through which it will offload these securities to investors after wrapping them with a government guarantee. But the actual bonds themselves, which continue to go bad as mortgage defaults and foreclosures rise, are still held in the trust and effectively owned by NCUA as liquidating agent for the corporate failures.
Consequently, losses on the actual bonds will continue to accrue to credit unions as the underlying collateral of the bonds erodes. NCUA plans additional offerings derived from the holdings of the four corporate CUs, and fifth corporate failure, Constitution Corporate FCU.
NCUA has projected that losses from the five corporate failures will cost credit unions more than $16 billion.
