LOS ANGELES – In the latest of a growing number of disputes over loan participations, San Diego Metropolitan CU filed suit in federal court claiming bad faith in its purchase of millions of dollars of church loans originated by America’s Christian CU that were bought by WesCorp FCU and resold as participations.
The latest dispute not only highlights some of the conflicts plaguing the burgeoning market for participations—known among banks as syndications—but also the financial troubles of some of the nation’s churches, many of them having taken out mortgages with America’s Christian CU and its neighbor Evangelical Christian CU. In fact, a growing number of troubled church borrowers has pushed Evangelical Christian CU, one of the nation’s biggest church lenders, deep into the red in each of the past two years.
In the new suit, transferred yesterday from state court to federal court, San Diego Met, which racked up $24 million in losses from 2007 to 2008, alleges that several of the $10 million America’s Christian CU church loans it bought as participations from WesCorp in 2008 and 2009 have gone bad, forcing it to charge-off hundreds of thousands of dollars of the participation deals. At the time, WesCorp, the one-time $32 billion corporate that was to fail in 2009, was one of the country’s biggest brokers of loan participations.
Among the loans in the lot was a $1.35 million loan to Victory Christian Center; a $1.8 million loan to Mount Cavalry Pentecostal Church; an $820,000 loan to Abundant Life Christian Center; and a $690,000 loan to Rock Church Ministries. At least two of the loans are in foreclosure, with San Diego Met charging off $317,000 against one of them.
San Diego Met, which has rebounded the past two years and had a $926,000 net for 2011, is alleging that it was not properly informed of the true condition of the loans when it bought the 95% participation shares from WesCorp and is seeking to have the loans repurchased, either by America’s Christian CU or by NCUA, which has assumed all ownership authority of WesCorp after it liquidated the corporate giant.
The emergence of the dispute comes as NCUA is seeking to pass tough new rules on loan participations in the face of a number of scandals in recent years. Among them are legal disputes over hundreds of millions in participations sold by big credit union failures Eastern Financial Florida CU, Cal State 9 CU and Norlarco CU, as well as subprime auto lender Centrix Financial and mortgage CUSO Central States Mortgage Co.
Mendell Thompson, president of America’s Christian CU, said they have been negotiating with San Diego Met to settle the claims. “I would hope that there will be a resolution without court,” he told The Credit Union Journal this afternoon.
Officials at San Diego Met did not immediately return a phone call seeking comment.
