Centrix CUs Get Assurance on Insurance Payouts

NEWARK, N.J. – Dozens of credit union CEOs can rest easier now that Everest National Insurance Co. has assured them they will continue to pay default protection insurance on failed subprime auto loans made through Centrix Financial Services, even though the company’s legal obligation to make the payments is in dispute. Everest made the assurance to NCUA in response to an unusual public plea from the credit union regulator last month that Everest continue to pay millions of dollars in DPI payments, while it litigates the matter, according to a source who has seen the letter. Everest did not return phone calls seeking comment. If Everest had shut off the DPI payments, it could cause millions of dollars of losses on more than 100 credit unions still working off Centrix loans. The Centrix case threatened to unwind further this week when The Credit Union of Texas agreed to buy back $13 million of subprime Centrix loans it had sold to Mission FCU in a participation deal. Numerous other credit unions are negotiating similar repurchases, potentially leaving a handful of large credit union originators of Centrix loans with millions of new losses. Everest has filed a civil fraud suit against Centrix and its founder, Robert Sutton, claiming Sutton violated his contract to reimburse Everest for losses on Centrix loans. Sutton, through a wholly owned company, called Founders Insurance, had agreed to indemnify his insurers–in effect agreeing to reinsure his own insurers.