Centrix Repurchase Roils Market for Loan Participations

SAN DIEGO – In a deal that could send a chill through the market for credit union loan participations, Mission FCU announced yesterday it had reached agreement with The Credit Union of Texas to buy back more than $13 million in Centrix Financial-related subprime auto loans Mission FCU had acquired in a loan participation with the Dallas credit union. 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 mistatements of fact, the credit union reported. Ron Martin, president of the $2 billion credit union, said yesterday 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 The 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 mistatement 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, like 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.