CUNA Comment Letter

Treasury's Guarantee Program for Troubled Assets Under the Emergency Economic Stabilization Act

October 28, 2008

The Honorable Neel Kashkari
Interim Assistant Secretary for Financial Stability
U.S. Department of the Treasury
1500 Pennsylvania Ave., N.W., Room 1328
1500 Pennsylvania Avenue, NW
Washington, DC 20220

    Re: Request for Comments on Treasury’s Guarantee Program for Troubled Assets Under the Emergency Economic Stabilization Act

Dear Assistant Secretary Kashkari:

The Credit Union National Association appreciates the opportunity to provide comments on the Development of a Guarantee Program for Troubled Assets under the Emergency Economic Stability Act of 2008 (EESA) , which was published in the Federal Register October 16, 2008. By way of background, CUNA is the largest trade organization representing approximately 90% of our nation’s 8,200 state and federal credit unions with over 90 million members.

Before turning to various aspects of the guarantee program as provided under EESA, CUNA once again commends the Treasury Department for its endeavors to address the financial crisis. This includes the Treasury’s ongoing communications to inform the public and stakeholders of its efforts.

While credit unions have generally sought to avoid the kinds of subprime mortgage lending that helped inflame the current economic meltdown, the Treasury is aware that credit unions do not operate in a vacuum and thus, will likely not totally escape problems in the broader financial markets.

To that end, CUNA has advocated the inclusion of credit unions among the institutions eligible to seek assistance, as needed, under all aspects of the Temporary Assets Relief Program (TARP) and welcomed the language in EESA advanced by House Financial Services Chairman Barney Frank and others to ensure credit unions were included under the new law.

In that connection, we believe the statute intended that, as needed, credit unions should be eligible for capital assistance, asset purchase, and asset guarantee programs, as well as future assistance programs the Treasury develops under EESA. In our view, this result is consistent with Section 103(5) of the statute, which directs the Treasury in exercising authorities under EESA to take into consideration “ensuring that all financial institutions are eligible to participate in the program without discrimination based on size, geography, form of organization, or the size, type and number of assets eligible for purchase under this Act.”

As announced, the Treasury’s capital purchase program would not include credit unions or other mutual institutions. However, we understand that Treasury is working on a capital program for mutual financial institutions, and we encourage the department to work with the National Credit Union Administration to allow credit unions to apply for capital assistance tailored to their unique cooperative structure, should they need it.

At this point in time, a widespread need for such capital within the credit union system does not appear likely, given the fact that overall, credit union net worth is around 11%. Nonetheless, should any credit union need such assistance, we believe they should be eligible to seek it under TARP.

We also want to work with NCUA to determine if NCUA can develop TARP-like programs that would allow any federally insured credit union that needs to sell troubled assets, apply for additional capital, or obtain asset guarantees will first be able to find a credit union-funded solution before having to call upon taxpayer dollars for help. Working through NCUA in this manner would also free up Treasury TARP funds for other institutions.

We also want to take this opportunity to reiterate that we support NCUA’s communication to Treasury regarding full insurance coverage for noninterest bearing transaction accounts at credit unions. CUNA strongly concurs that these accounts at credit unions should have full insurance coverage on parity with Federal Deposit Insurance Corporation-insured institutions, and that the National Credit Union Share Insurance Fund has authority to provide the coverage.

Turning to the Troubled Assets Guarantee Program, EESA requires the Treasury Department to establish such a program if it establishes a program to purchase troubled assets, which the department has underway. The troubled assets eligible for the guarantee must have been originated or issued prior to March 14, 2008. The department’s request for comments seeks guidance on how the insurance or guarantee program should be established. While a proposed rule or guidelines would have facilitated comments, CUNA would like to offer a few general points regarding the guarantee program.

In our view, the program should be implemented under a regulation issued by Treasury, which could utilize the responses to this request as a basis for a proposed rule that is published in the Federal Register for further comments.

While EESA does not require a regulation for this program, having a rule or at least guidelines, which define the parameters of the program, will be beneficial to institutions, the public, and to Treasury. Developing a rule may take a few additional days or weeks but this program was not intended to provide immediate benefits for institutions or the economy. The Act requires a report on this program to Congress within 90-days of enactment, which would around be January 1, 2009. This should provide sufficient time to draft the proposed rule or guidelines, seek comments, and initiate the program under the final rule or interim final rule before that date.

As indicated above, one of the most important aspects of this program is that all financial institutions be eligible to participate. In our view, not only should it be clear that all types of financial institutions are eligible, but also that Treasury should structure the program to ensure requirements are not unduly burdensome for any group of institutions, such as credit unions. Treasury should work with the other regulators, including the NCUA, to develop eligibility requirements that are fair and appropriate for all types of institutions.

Under EESA, participating institutions would be assessed risk-based premiums that are to be deposited into a Troubled Assets Insurance Financing Fund, and payments from the Fund will be used to help finance the guarantees. Again working with the other federal financial regulators, Treasury should insure the premiums are fairly priced, so that institutions are not excluded based on costs, and that premiums reasonably reflect the credit risk of the debt that is being insured, as required by EESA.

The Department seeks input on whether individual loans could be insured. In our view, the program should include individual first loans, home equity lines of credit, mortgage-backed securities and related instruments. However, any institution that applies for a guarantee for a loan or line of credit should be required to first work with the borrower to determine if a loan modification is appropriate and could be achieved before the guarantee is provided. This approach could potentially reduce the government’s exposure under the guarantee program as well as assist homeowners to be able to afford their mortgage payments and remain in their homes.

We also think that a guarantee for certain loans other than mortgage-related assets could be considered, although not necessarily at the outset of the program, depending on the availability of resources for the guarantees. For example, loans from eligible institutions to small businesses that were not made through the Small Business Administration’s programs could possibly be eligible for a guarantee, thereby facilitating additional small business lending by participating institutions.

In closing, the Treasury Department has several initiatives underway to address the financial crisis, and we encourage your efforts to implement these programs in a thorough yet timely manner. We also strongly support efforts to provide relief to individual borrowers strapped with mortgage loans that are not appropriate for their financial situations and encourage the Administration to intensify efforts to assist these homeowners. Our comments regarding the Troubled Assets Guarantee Program reflect general issues but we would welcome the opportunity to provide specific comments based on an actual proposal.

Sincerely,

Mary Mitchell Dunn
CUNA Senior Vice President and
Deputy General Counsel