Credit union seeking thrift charter fears a takeover by its regulator.

The first credit union to apply for a mutual savings bank charter has run into opposition from the National Credit Union Administration.

Officials of Newark-based Lusitania Federal Credit Union fear the NCUA might take them over, just as in June it seized an Oklahoma institution that was contemplating converting its charter.

"We worry something like that may happen," said branch manager Sandra Teixeira. Regulators "haven't come forward and stated anything like that, but it doesn't look good."

On Aug. 3 Lusitania Federal sere its charter application to the Office of Thrift Supervision. It is Seeking a mutual savings bank charter for greater freedom in mortgage lending and to keep control of the institution with depositors, Ms. Teixeira said.

But on Aug. 4, she said, the NCUA Sent Lusitania a "discouraging" letter explaining that no conversions will be approved until the agency issues a final role on conversions later this year.

Then, on Aug. 8 NCUA sent special examiners from Texas into Lusitania Federal to check its books. These examiners are still at the credit union.

The credit union will go ahead with its plan, Ms. Teixeira said. If the agency places it under conservatorship, credit union officials "will have to take action." She didn't elaborate.

Bob Loftus, NCUA director of public and congressional affairs, said the agency was "shocked" at the charges of intimidation.

"There has been increased supervision of the credit union for several months," he said. "It has real problems, none of which we think are serious, that have to do with an increase in delinquencies and a downturn in the Newark real estate market."

Mr. Loftus said bringing in examiners from other states isn't unusual, and that the increased scrutiny isn't connected with the credit union's application.

Currently $2.6 million, or 9.2%, of Lusitania Federal's loans are delinquent. The industry's average delinquency rate is 0.9%, but the situation "isn't out of control," Ms. Teixeira said.

As of June 30, the credit union had a 16.5% total capital-to-assets ratio, according to Veribanc Inc., a rating firm in Wakefield, Mass. That' s a more than adequate buffer against these delinquencies, said Warren Heller, Veribanc's research director. "In a worst-case scenario, if every delinquent loan was charged off, it doesn't come to enough of a problem to challenge the solvency of the credit union." Mr. Heller said.

"The only way to get into a scenario to warrant major regulatory action would be for NCUA to allege heavy-duty fraud," he said. "From the call report there's no reason even to schedule an examination."

Lusitania has a CAMEL 3 rating, Ms. Teixeira said.

For years the NCUA has chided the credit union for its concentration in mortgage lending, she said. About 95% of its $28 million loan portfolio is in real estate loans.

As delinquencies rose 1992 and 1993 due to a downturn in the economy, the NCUA began to order corrective action, Ms. Teixeira said.

In December, 1993 the NCUA told the credit union to draft a plan outlining how it would survive if it abandoned mortgage lending.

"We wouldn't survive," Ms. Teixeira said. "That's our line of business and that's what our members want." The credit union's customer base comprises the Portugese communities of three New Jersey counties. Examiners from Pennsylvania and agency headquarters began accompanying the credit union's usual examiners in January. In April, the NCUA told the credit union to put a moratorium on mortgage lending.

The agency currently is putting together a final role that would give it the power to block any credit union conversion.

The proposal, issued June 23, also required a membership vote, which the regulator would oversee. The comment period expired Aug. 1.

"It's almost impossible to convert under the proposal," Ms. Teixeira said.

Also on June 23, the NCUA seized Tulsa-based OneOk Credit Union, which had been eyeing conversion but hadn't applied.

The agency has said the takeover wasn't connected to the credit union exploring a charter change.

Agency officials have blasted law firms that are peddling conversions to credit unions, but Ms. Teixeira said the credit union didn't contact a law firm until after it decided to convert.

Bill Fulwider, spokesman for the OTS, said Lusitania's application is being reviewed.

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