ALEXANDRIA, Va. -
The federal regulator was reviewing bids from three Colorado credit unions–believed to be Ent FCU, Bellco FCU and Public Service CU–for the healthy assets of Norlarco and was expected to make a decision last week, but cancelled at the last minute. As it did with Huron River Area CU and New Horizons Community FCU, NCUA plans to sell those assets, which include six branches, seven ATMs and some 35,000 member accounts, and keep the distressed loans.
The auction of Norlarco, one of three CU failures tied to speculation in two south Florida real estate developments, was occurring just as NCUA was selling off the first of as much as $240-million worth of Florida loans made by the Fort Collins, Colo., credit union–a package of 100 home loans valued at $26 million.
NCUA is hoping to pool some $400 million of distressed Florida loans made by Norlarco, Huron River Area CU and New Horizons Community FCU just as the Florida market is tanking, and sell the paper on the now overloaded distressed loan market. The declining real estate market in Florida has complicated the resolution of the Norlarco case, prompting NCUA to delay declaring a winning bidder for of the credit union’s remnants.
The three failed credit unions got involved in the Florida projects, 2,000 miles away, through a real estate investment program known as “Millionaire University” that purported to teach middle-income investors to get rich. The program guaranteed a 14% return to invest in a house to be built and leased for one year, before the property would be flipped for high returns in the booming Florida real estate market. The loans were highly leveraged, with borrowers paying an average of just $1,000 for $250,000 mortgages.
The three credit unions were among more than a dozen lenders providing the highly leveraged mortgages. Others were Bank of America, Countrywide Financial, First Florida Bank, Ocwan Financial, and subprime mortgage units of Lehman Brothers and GMAC.
As the Florida expansion cooled, the operators of the investment scheme started having troubled “pre-leasing” the houses, keeping the borrowers from their cash flow to pay the loan, thousands of which have already gone into foreclosure, adding to an already depressed local real estate market. Exacerbating the situation is the sale of hundreds of the Florida lots at large discounts by builders.
That’s the climate NCUA, with more than 2,000 of the loans, finds itself in now, one agency source said last week. The panicked selling of some of the properties continues to depress the value of the property, and thus the loans. In the long term this will reduce the return for NCUA, which finances its asset recovery program through the National CU Share Insurance Fund.
Tied closely to the Norlarco deal is the prospects for 16 other credit unions and two banks that bought $170 million of the Norlarco loans in participation pools. NCUA has apparently agreed to assume liability for those loans, part of the $440 million total, as part of the resolution of Norlarco, according to sources. Otherwise, those credit unions would be required to write-down the value of their participations, pushing many of them into the red.
