Centrix Plot Thickens: Second Insurer Claims $130 Million from 80 CUs

DENVER – In a broadening of the Centrix Financial scandal, Lyndon Property Insurance Co. filed claims in federal bankruptcy court last week alleging more than 81 credit unions owe it $130 million it paid out as coverage of Centrix’s subprime auto loan Portfolio Management Program. Lyndon, one of two Centrix insurers suing the company and its founder Robert Sutton, claims the credit unions schemed with Centrix to hide losses on the vast subprime auto loan portfolio, causing Lyndon to pay claims it wasn’t obligated to pay. From 1998 to 2003, Lyndon provided Default Protection Insurance on billions of dollars in loans originated by credit unions, relying on the underwriting expertise of both Centrix and the participating credit unions. But Lyndon claims it was kept in the dark about significant losses experienced by the credit unions and of alleged payments made by Centrix to the credit unions. Since Centrix filed for bankruptcy last year, Lyndon said the company provided it with a status list of 10,500 subprime auto loans, but intentionally concealed information on another 1,100 repossessions. Lyndon also claims that its contract with Centrix prevented credit unions from selling participation in the loans without Lyndon’s approval. Dozens of participating credit unions are now negotiating with credit union originators to buy back Centrix loans. In one such case, The Credit Union of Texas agreed to buy back $13 million in loans it sold to Mission FCU in a participation deal. Centrix is also being sued in federal court in New Jersey by Everest National Insurance, which provided Vendor’s Single Interest Insurance on many of the loans. Among the credit unions named in the Lyndon suit are: The Credit Union of Texas, Landmark CU, Meadows CU, F&A FCU, Alabama State Employees CU, Alta Vista CU, Arizona Central CU, Cabrillo CU, Campus USA FCU, Financial 21 Community CU, Gateway CU and Mutual Savings CU. Attorneys for several of the credit union did not return phone calls seeking comment yesterday.