Originally Posted by Reality Bytes
Here's something interesting...

I was just watching the House Dems' hearing being broadcast live on CNN, and Rep. DeFazio mentioned that many credit unions have come to him and told him:

a) They are doing fine, have plenty of money to loan, being based on deposits and not 'financial instruments'
b) They are now getting new customers, large companies that, although solvent with plenty of assets, have been working with large commercial banks, who can no longer use their credit lines because
c) their commercial banks told them that the FDIC told THEM to freeze all credit lines...

His question: Are the Feds trying to solve the problem, or are they trying to make the problem more of a crisis, to get the solution they want?

Credit unions still sell the loans that they originate to corresponding lenders like Well Fargo, Countrywide (or BofA now), Suntrust, Citi and US Bank.

A small bank like a credit union does not hold the loan for more than 30 days max. The goal is to sell it before the first payment in order to get the best price and also to free up the money to lend it to other people.

Now what will happen if nobody will buy those loans from credit unions? If they are forced to keep on the books 100 loans averaging $200,000 that's $200,000,000 that is tied up and they cannot lend anymore. And really, I doubt any credit union has that kind of cash on hand to lend.

I've dealt the past 3 years with a lot of credit unions in IA and MO. I worked for one of those correstponding banks that were buying the loans... some of them could not originate more than 5 loans at a time and were begging me to review their loans as soon as possible and wire the money same day.

People do not understand how the financial world really works.

A gem cannot be polished without friction, nor a man perfected without trials. ~Chinese Proverb

The early bird gets the worm, but the second mouse gets the cheese. ~Jon Hammond