Warning

If you have large holdings in a federally insured credit union, make sure you can accept the losses.

The National Credit Union Administration is the federal body that regulates credit unions. Credit unions, by law, operate differently from banks. It has been characterized as "neighbors serving neighbors". The NCUA will not allow member credit unions to buy junk mortgages on the secondary markets and enforces strict regulations on loans that member credit unions can make to their members. Default ratios are very low even now.

Sadly, the NCUA is not governed by the same rules it makes for the 9,500 member credit unions and is the embarassed owner of nearly $1 billion in mortgage loans about to go into default.

http://www.ncua.gov/news/press_releases/2009/MA09-0210a.htm

The NCUA will take 1% of each credit union's contribution to a required liquidity fund that insures members' accounts. Not only will the member credit unions have to write that 1% off their books this year but each will still be legally obligated to restore their contribution to the level that exists today. Therefore, if your credit union owes $20,000 they will be charged $40,000. If your credit union cannot pay dividends this year, it will be legally required to dissolve and divide equally any remaining balance on the books among all members.

I strongly recommend if you have an interest in a local credit union that you quietly inquire what your liability will be in a worst-case scenario. Yes, your investment is federally insured. But if your credit union is shaky now and has to dissolve, the requirement that the remaining balance be divided equally will be unfair to some shareholders.