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Credit Unions Propose TARP Funding for Mortgage Relief Program

The ""National Credit Union Administration"":http://www.ncua.gov/ (NCUA) has unveiled a plan to refinance billions of dollars of at-risk mortgages using funding from the Treasury's Troubled Asset Relief Program (TARP). The initiative is aimed at helping credit union members preserve their homeownership by funneling federal loans to credit unions through the ""Central Liquidity Facility"":http://www.ncua.gov/CLF/index.htm (CLF), the lending arm of the NCUA, the administration explained in a press statement earlier this week.
The Credit Union Homeowners Affordability Relief Program (CU HARP), as the plan is being called by the agency, would enable NCUA to work with credit unions and their members to temporarily lower monthly mortgage payments. The NCUA's liquidity facility would provide credit unions with funds borrowed from the Department of Treasury at lower rates than otherwise available through private sources. In turn, NCUA said, credit unions would pass the entire rate reduction on to struggling low and moderate- income borrowers. The credit union, in exchange for the reduced likelihood of borrower default on the mortgage, would be required to match the rate break, doubling the benefit to struggling homeowners, the association said.
NCUA Chairman Michael E. Fryzel said, ""My principal reason for advancing CU HARP is simple: the consumer must not be left out of the broader government efforts to mitigate the housing and credit market dislocations. CU HARP is an effort to foster a solution whereby the NCUA and credit unions work together to assist distressed borrowers.
""It represents what I believe to be an innovative and practical use of federal homeowner assistance that will also benefit credit unions and the market,"" Fryzel continued. ""At the same time, the standards and requirements for CU HARP participation will be stringent and will enable NCUA to be responsible stewards of any public funds used. CU HARP will be a ‘win-win’ for all involved.""
Treasury Secretary Henry Paulson, and other representatives of the Department, have expressed strong opposition to the idea of using the $700 billion TARP funding for foreclosure relief to homeowners. ""Just this week"":http://www.dsnews.biz/index.php/home/news_story/2190, Paulson clashed with Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), at a House Financial Services Committee hearing, arguing that such a program did not offer taxpayers a return on their investment and that the best way to combat rising foreclosure numbers was through recapitalization of the country's financial system.
However, according to NCUA, its CU HARP initiative will be administered at no cost to taxpayers and in fact provide that return that Paulson demands. CLF loans are made to credit unions on a fully-secured basis, the administration said, and all advances received by the CLF will be repaid to the Federal Financing Bank (an arm of Treasury) with interest. NCUA is asking for initial funding of $2 billion for the program. In addition to NCUA board approval, CU HARP must also receive sign off by the Treasury Department and the Federal Reserve's Board of Governors before funds can start flowing.
Borrowers participating in CU HARP would be subject to eligibility standards, including income level, default or danger of default, and required occupancy, NCUA said. The individual credit union would have the option of setting the period of rate break (3 to 5 years) and would be able to create a 40 year maturity and/or reduce the principal balance to increase the affordability of mortgages for its members.
The National Credit Union Administration is the independent federal agency that regulates, charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, also operates and manages the ""National Credit Union Share Insurance Fund"":http://www.ncua.gov/ShareInsurance/index.htm, that market's counterpart to the FDIC, insuring the deposits of nearly 89 million account holders in all federal credit unions and the majority of state-chartered credit unions.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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