“Green Shoots” for US Credit Union Securitizations: An Examination of the Related NCUA Safe Harbor

Abstract

Despite the fact that the National Credit Union Administration (NCUA) finalized (more than 24 months ago) the new required securitization safe harbor rule and other legal requirements to facilitate securitization by federal credit unions (FCUs), an FCU only recently closed the first securitization of a prime auto portfolio. This is rather surprising because banks and other credit providers have widely and actively used securitization as an important means for funding such credit activities and as a tool for active portfolio management to enhance related investment returns.

TOPICS: Credit risk management, information providers/credit ratings

Key Findings

• • Banks and other credit providers have widely and actively used securitization as an important means of funding credit activities and as a tool for active portfolio management to enhance related investment returns.

• • Securitization has not been widely used by federally insured credit unions (FICU) because of NCUA’s authority to disaffirm or repudiate contracts of a failed FICU, which powers apply to the transfer of financial assets in connection with a securitization.

• • Recognizing the chilling effect this authority has had on securitizations sponsored by FICU, NCUA has issued a safe harbor that defines the conditions for protection for securitization transactions for any transfer of financial assets.

• • A recent FICU securitization has demonstrated that the safe harbor is opening the door for future FICU securitizations that rely on the safe harbor.