NEWARK, N.J. -
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.
CU of Texas Buys Back Loans
The Centrix case threatened to unwind further last week when The Credit Union of Texas, Dallas, agreed to buy back $13-million of subprime Centrix loans it had sold to San Diego-based 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.
Mission FCU, one of the hardest hit credit unions from the Centrix fallout, exercised its rights under the participation because the loans, with high default rates, were sold with misstatements of fact, the credit union reported. Ron Martin, president of the $2-billion credit union, said the loans were part of a $90-million pool his credit union had participated in with Texas Credit Union. The $13-million represents the remaining balances on the loans as of April 30.
"We're not calling it recourse, but they have agreed to repurchase the loans," Martin told Credit Union Journal.
Brad Pizer, a Beverly Hills lawyer representing Mission, said the standard loan participation agreement requires the repurchase if the loans have been sold with any misstatement of fact, even if it is unintentional. "It would be irresponsible for Mission not to reallocate the losses to the originating credit union," said.
The deal has the potential to force a handful of the Centrix originators, such as The Credit Union of Texas, to accrue millions in new losses and could even roil the multi-billion-dollar market for credit union participations, where recourse of large sums is rare. Officials with the Credit Union of Texas did not respond to phone calls for comment. Several other credit unions are believed to be mediating their differences on Centrix-related participation agreements, which could result in other multi-million dollar settlements. Mission FCU, which has wracked up significant losses on its Centrix loans, is also pursuing repurchase with as many as a half-dozen other credit union originators, said Martin.
Martin called the agreement "a successful resolution for all parties." He said MFCU's portfolio of Centrix loans is approximately $35 million.
Flatiron Financial Services, a Centennial, Colo.-based company that formerly served as the servicing platform for Centrix Financial, is the legal successor to Centrix. Kevin Barry, Flatiron Financial's CEO, formerly ran the servicing division of Centrix. He said Centrix remains in the liquidation process of bankruptcy filing and substantially all assets of Centrix were purchased by the group that evolved into Flatiron.
At time of acquisition, 142 CUs had Centrix loans. Flatiron contracted with 140 of those, he added. Flatiron had "no role" in the Mission Fed-CU of Texas agreement, Barry told the Credit Union Journal.
"At the close of the deal, we will assist with reporting," he explained. "Our client was CU of Texas, and CU of Texas and Mission Federal had a participation deal. There are a lot of participations in this portfolio. We never had an agreement with Mission Federal. We will modify our records to show CU of Texas owning 100%, where formerly CU of Texas owned 10% and Mission Federal 90%."
CU Movement's Concerns Acknowledged
Barry acknowledged the CU movement's concerns regarding default protection insurance claims relating to Centrix loans. He said DPI payments remain "an estate/Centrix issue" for the bankruptcy court to determine. "From Flatiron's standpoint, I'm not sure if there has been resolution. But, claims continue to be paid and Flatiron has not been informed of any claim payment interruption," he said. "We are not party to those negotiations, but we are in regular dialog with the insurer and the owner of the loans, the credit unions. There was speculation concerning reinsurance issues with the bankruptcy that led to trepidation the insurance payments would not be made.
