WARRENVILLE, Ill. – Troubled Central States Mortgage Co. filed with a state court Friday to begin liquidating assets, a move that is likely to cost ailing Members United Corporate FCU millions of dollars of losses on the warehouse line of credit the corporate had provided the mortgage CUSO.
Central States, which provided mortgage services to more than 250 credit unions, filed for receivership with the Milwaukee County Court, which is similar to a federal bankruptcy and will entail a liquidation of the CUSO’s assets overseen by a court-appointed receiver.
Central States, which had written more than $500 million in loans last year, suddenly shut its doors March 9, throwing about 220 people in five states out of work. Wisconsin has filed a $3 million wage lien against the mortgage banker/broker, which owes wages for March and commissions for February and March. The state is investigating whether Central States violated plant closure laws when it shut down.
Members United, which layed-off its former president in November as part of a cost-saving move to help stem further losses, said Friday it had written down a $32.5 million loan with Central States to $22.9 million, and had established a loan loss reserve of $2.7 million for the loan. But an additional reserve may be necessary depending on the outcome of the Central States case.
Central States was owned by 25 credit union and the Wisconsin CU League, which have already written-off a total of more than $5 million investment in the CUSO and more than $3 million of loans.
Members United, one of eight corporates stuck with large holdings of underwater mortgage-backed securities, also said it expects to charge off $308 million of membership capital shares and paid-in-capital it holds in U.S. Central FCU, which was taken under conservatorship by NCUA on March 20. Members United also reported a $1.4 million impairment of its 1% National CU Share Insurance Fund deposit, as a result of NCUA’s corporate bailout.
The $10 billion corporate also said it is consulting with its auditors on what portion of $2.1 billion of unrealized losses it has on its investments it will charge off as other-than-temporary impairment. "Due to continued deterioration in the economy during the 4th quarter, additional OTTI will be recorded as losses on a few investments now appears probable of occurring at some point in the future," said Todd Adams, chief financial officer for Members United, in a letter to members on Friday. "Additional 3rd party reviews are being performed to verify if losses are probable and require an OTTI accounting charge."
The corporate was one of eight to have its rating downgraded last week by Fitch Ratings because of the failure of U.S. Central, which will eliminate all membership capital and PIC held by the corporates in U.S. Central.
