Since the launch of the Corporate System Resolution Program, the NCUA communicated that the Stabilization Fund cash needs are front-end loaded in the initial years of the fund. The longer-term cash needs of the Stabilization Fund will be affected by the performance of the Legacy Assets.
The graph below shows the range of projected defaults on the remaining Legacy Assets, illustrating the high and low end of the projected defaults range. The total Resolution Costs projected in July 2010, just prior to the liquidation of the corporates, were $15.1 billion. This is the best estimate the NCUA had in July 2010 and serves as a point of reference for future projections. Because Legacy Asset defaults make up over 90% of total Resolution Costs, actual performance of the Legacy Assets as well as projected defaults in future periods will cause variation in the estimates of total Resolution Costs. Legacy Asset defaults that are greater than those projected during issuance of the NCUA Guaranteed Notes (NGNs) will trigger guaranty payments from the Stabilization Fund. More information about the NGN Program can be found here.
Some of the remaining Legacy Assets have long stated maturity dates and, as the grapth indicates, the NCUA anticipates defaults on these assets to continue far into the future.
The actual defaults (realized losses including implied writedowns) show how the Legacy Assets are actually performing and will be updated as new data becomes available. This chart will be updated semi-annually. The next update will be completed by June 30, 2012.
Projected Timeline of Remaining Legacy Asset Defaults as of 6/30/2011
Note:The projections in the graph above of remaining Legacy Asset defaults are a portion of the total Resolution Costs. There are other costs associated with the resolution that are not included in the graph, however, defaults on the remaining Legacy Assets are the largest (over 90%) and most variable component.
* The NCUA started the NGN Program as part of its strategy to isolate and fund the Legacy Assets of the AMEs, to provide urgently needed cash liquidity, and to significantly reduce losses in the credit union system. The maturity dates of the NGNs will bring about another decision for the NCUA about how to continue to fund the remaining Legacy Assets. The NCUA will evaluate all available options when deciding its course of action. Options that may be considered include: Re-securitization, outright sales, and holding the Legacy Assets. Additionally, combinations of the above strategies may be considered in an effort to fund the Legacy Assets at the lowest long-term cost.
Range of Remaining Projected Assessments in 2011 and Estimates of Assessments from 2012 through 2021
* For illustration purposes only. The NCUA Board must determine the annual assessments each year based on a variety of factors including Stabilization Fund cash needs, projections of losses and cash flows on the Legacy Assets, actual performance of the Legacy Assets, and projections of losses related to disposing of other assets of the AMEs.
** The NCUA Board formal estimate of the 2012 assessment is 8-11 basis points (bps) of insured shares. On a straight-line basis, the annual assessment from 2013 to 2021 would be approximately 2 basis points to reach cumulative assessments of $1.9 billion for the low end of the current projected loss range. To reach the high end of the current projected loss range, $6.2 billion, the annual assessment would be approximately 8 basis points. Actual assessments will be determined by the NCUA Board based on the factors discussed above.