However, the state alleges that they had high risk mortgage backed securities, such as inverse floater, CMOs in their portfolios. March 7 - In the period November to January Hotline calls were evenly divided between CUs, examiners and brokers. The Hotline cannot answer questions from the public about broker reputations unless NCUA has taken official action. Currently, there are no outstanding actions. February 23 - During the last downturn in rates many CUs purchased inverse floaters to increase the return on their portfolio, and then got into trouble when yields increased.
Inverse floaters are almost never appropriate.
When interest rates rise, increasing a CUs cost of funds, the return on these securities will be declining. February 16 - Examiners may start seeing a new type of structured note. While ACP cash flows are linked to rate levels PLN cash flows reflect mortgage prepayments. After the lockout period, when only interest is received, principal payments will be related to the amortizing rate of the underlying collateral, based on a table provided in the prospectus. At maturity all outstanding principal payments will be made.