Local credit unions must help repay national loan

Rogue Federal Credit Union gets a hefty annual reminder of the serious hit the nation's retail credit unions took when Wall Street's investment banks began collapsing three years ago.

Just as the real estate bubble was bursting, investment banks unloaded $50 billion of mortgage-backed securities to wholesale or corporate credit unions that provide essential services such as check clearing for member-owned cooperative credit unions, including RFCU.

Those securities — a collection of subprime and interest-only loans and mortgages done without requiring income verification — proved the undoing of five wholesale credit unions subsequently taken over by the National Credit Union Administration, the federal regulator for credit unions.

The seizures in 2009 and 2010 forced local retail credit unions around the country to shoulder the load, paying insurance premiums to sustain the industry.

NCUA asked Congress to set up a separate corporate stabilization fund with a loan from the Treasury Department. The agency is levying assessments on credit unions to repay the loan based on their total deposits. In RFCU's case, it amounted to $591,000 in 2009 and $564,000 in 2010.

Although it came at a cost, instead of getting funds from the Treasury to overcome the devalued bonds, the nation's credit unions stood tall as safe harbors during the economic crisis, said RFCU President and Chief Executive Officer Gene Pellham.

"We are as strong, vibrant and relevant today as we have ever been," Pellham said. "As not-for-profit cooperatives, we have all felt the impact of the economic crisis and joined together to absorb the investment losses sustained by the corporate (wholesale) credit union system from the Wall Street firms."

On Wednesday, The Wall Street Journal reported the NCUA has threatened to sue Goldman Sachs, Merrill Lynch, Citigroup and J.P. Morgan Chase & Co. if they don't refund $50 billion from the sale of mortgage-backed securities to the five corporate credit unions that the agency closed.

"It has very little impact right now, but it is positioning the NCUA to address the losses they suffered through the corporate credit union losses," Pellham said. "Basically, it's an opportunity for them to replenish their funds at faster rates."

Pellham said RFCU has budgeted for an assessment similar to the past two years for 2011, but likely won't know how much until Sept. 30.

"They look at the insurance fund on an annual basis and determine a certain level of billing," he said. "We expect the numbers to go down, but it will remain that way for about 10 years."

RFCU is approximately the 400th largest credit union out of more than 7,000 nationally and is the 12th largest in the state.

"Our membership has grown at three times the national average for a credit union our size," he said. "I think it is because people are looking more and more local. The New York firms created distrust and (customers) are looking for local financial institutions where they can look their money in the eye."

As of last June, RFCU had the second-highest number of deposits among Jackson County financial institutions, trailing only Umpqua Bank's $414 million total by $17 million, Pellham said.

Reach reporter Greg Stiles at 541-776-4463 or e-mail business@mailtribune.com.

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