$500 Million Question Surrounding Florida Land Bust: Whose Loans Are They Now?

FORT MYERS, Fla. – As regulators tally the losses of two failed Florida real estate developments that helped sink three credit unions, observers are wondering who will take the final hit on more than $500 million in loans made by the three credit unions to investors in the properties. NCUA, which may end up holding the failed loans, emphasized this week it has not yet assumed any of the assets of the two credit union failures it currently is running as conservatorships, Colorado’s Norlarco CU and Michigan’s Huron River Area FCU. "They’re still on the books of the credit unions," John McKechnie, spokesman for NCUA, told The Credit Union Journal. The two credit unions and a third failure, New Horizons Community FCU, were among a half-dozen lenders to “Millionaire University,” a real estate speculation scheme that promised investors in the developments here–known as Cape Coral and Lehigh Acres–a 14% annual return. Charge-off rates on the loans are soaring as investors are fleeing the failed developments. In addition, hundreds are suing the credit unions and other participants in the scheme to hold off foreclosure, promising additional charge-offs in the coming weeks and months. Still to be tallied is the effect on dozens of other credit unions that purchased participations in the real estate loan pools. Superior Choice CU in Wisconsin, which is suing Norlarco over a participation agreement, has seen its delinquencies leap from just $150,000 in the first quarter to more than $5.4 million at mid-year. If NCUA assumes ownership of the loans, as is widely expected, it could affect the entire credit union movement by eating into possible dividends for the National CU Share Insurance Fund.