Caltech Employees Federal Credit Union
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FOCUS - Fall 2007 Article - CEFCU INVESTMENTS ARE SAFE AND SECURE
With so much media attention recently focused on the mortgage related investment markets, John Meeker, Senior Vice President and Chief Financial Officer of Caltech Employees Federal Credit Union, was asked to respond to some questions about the CEFCU investment portfolio.
First, why does CEFCU have funds to be invested?
Meeker: When members make deposits into their share accounts, the funds are loaned out to qualifying CEFCU members. This is the true essence of the credit union cooperative system. Any excess funds are invested in high quality securities that generate revenue necessary to pay superior dividends to savers.
How much and what type of mortgage-related securities are in the CEFCU investment portfolio?
Meeker: All of CEFCU’s mortgage-related securities are either direct obligations of Government Sponsored Agencies (FNMA/FHLMC) or direct obligations of the U.S. Treasury (GNMA). Mortgage loans that collateralize these securities must go through rigorous underwriting standards that are defined by these agencies.
What is a Sub-Prime or Alt-A mortgage loan and does the CEFCU investment portfolio contain any securities backed by Sub-Prime or Alt-A mortgage loans?
Meeker: We have no Sub-Prime or Alt-A mortgage-backed securities. Sub-Prime loans are loans made to the most risky borrowers and have been the subject of the most media attention. Many of these loans have significant “teaser rates” that are adjusting upwards at the same time home values are declining. As a result, these borrowers do not have the ability to refinance and hence the higher level of delinquencies and foreclosures. Alt-A loans were made to borrowers with relatively clean credit, however, all the documentation required for “conforming loans” was not required by the lender. To date, this sector has not experienced the same level of problems as the Sub-Prime market.
What is a “Private Label” mortgage-backed security and does the CEFCU investment portfolio contain any Private Label mortgage-backed securities?
Meeker: We have no “Private Label” mortgage-backed securities. Private Label MBS are securities backed by loans that are securitized by non-government related entities. The loans that back these securities are not underwritten in accordance with FNMA, FHLMC, or GNMA standards. Under current regulations, only loans up to $417,000 can be purchased by the agencies and all loans above these amounts are securitized by other entities. While many Private Label securities are performing well, there is a small portion of these securities that are backed by Sub-Prime or Alt-A loans.
Is the CEFCU investment portfolio safe and secure?
Meeker: YES. Since our entire mortgage securities portfolio has either the direct backing or implied backing of the U.S. Government, our principal and interest payments are virtually guaranteed. GNMA, FNMA, and FHLMC are required to return principal to the investor whether or not the underlying loans pay as contracted. This is not the case for all Private Label MBS.
The CEFCU investment portfolio is solid, safe, and secure!
It has not been negatively impacted by the mortgage related troubles that one hears about daily. The strength of the portfolio is a strong testament to the wise nature of the CEFCU Board of Directors approved investment policy.
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