Home / Markets / Industries / Finance
Monday, August 11, 2008
Credit Unions Falter in Face of Mortgage Woes
FOXBusiness
Five of the largest credit unions in the U.S., including the U.S. Central Federal Credit Union have reported large losses on mortgage securities, according to the Wall Street Journal.
Those named include Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union, and Constitution Corporate Federal Credit Union.
While the losses suggest the housing crisis has spread to some of the more risk-cautious institutions, the federal regulator presiding over credit unions said these losses may well disappear when mortgage markets become more stable. The regulator also said that the credit unions have enough capital, according to the Journal.
The affected credit unions reported $5.7 billion of “unrealized" losses at the end of May this year, according to the Journal. Unrealized losses occur even when a security hasn’t been sold, when the market value of a security drops. According to the Journal, the losses of the credit unions are enough to wipe out the next worth of each of them, given that their negative equity is $2.9 billion and that their debts exceed the market value of their assets.
Commercial banks and financial firms nationwide have taken more than $300 billion worth of writedowns since the credit crunch began.
Fox Business Video
-
-
Helping Veterans Land Jobs
-
Jul 2, 2009
Baird on Helping Soldiers
-
-
-
President's Plans Working
-
Jul 2, 2009
Goodstein on Stimulus Success
-
-
-
Jackson Lives On
-
Jul 2, 2009
Beck on Future of Jackson
-
-
-
$20 Dollars a Gallon
-
Jul 2, 2009
Paying More to Save Economy
-
-
-
Looking for the Road to Recovery
-
Jul 2, 2009
Morris on Unemployment
-
FOX Translator
No data currently available.
No data currently available.
Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
