LOS ANGELES-In the latest of a growing number of disputes over loan participations, San Diego Metropolitan CU filed suit in federal court claiming bad faith in its purchase of millions of dollars of church loans originated by America's Christian CU that were bought by Wes-Corp FCU and resold as participations.
The latest dispute not only highlights some of the conflicts plaguing the burgeoning market for participations-known among banks as syndications-but also the financial troubles of some of the nation's churches, many of which have taken out mortgages with America's Christian CU and its neighbor, Evangelical Christian CU.
Indeed, a growing number of troubled church borrowers have pushed Evangelical Christian CU, one of the nation's biggest church lenders, deep into the red in each of the past two years.
In the new suit, transferred from state court to federal court, San Diego Metropolitan, which racked up $24 million in losses from 2007 to 2008, alleges that several of the $10-million America's Christian CU church loans it bought as participations from WesCorp in 2008 and 2009 have gone bad, forcing it to charge-off thousands of dollars of the participation deals. At the time, WesCorp, the one-time $32-billion corporate that was to fail in 2009, was one of the country's biggest brokers of loan participations.
A List Of Loans
Among the loans in the lot was a $1.35-million loan to Victory Christian Center, a $1.8-million loan to Mount Cavalry Pentecostal Church, $820,000 loan to Abundant Life Christian Center, and a $690,000 loan to Rock Church Ministries. One Florida church loan has been foreclosed.
San Diego Metropolitan, which has rebounded the past two years and had a $926,000 net for 2011, is alleging it was not properly informed of the true condition of the loans when it bought the 95% participation shares from WesCorp and is seeking to have the loans repurchased, either by America's Christian CU or by NCUA, which has assumed all ownership authority of WesCorp.
Eye On Loan Participations
The emergence of the dispute comes as NCUA is seeking to pass tough new rules on loan participations in the face of a number of scandals in recent years. Among them are legal disputes over hundreds of millions of dollars in participations sold by big credit union failures Eastern Financial Florida CU, Cal State 9 CU and Norlarco CU, as well as subprime auto lender Centrix Financial and mortgage CUSO Central States Mortgage Co.
Mendell Thompson, president of America's Christian CU, said his credit union has been negotiating with San Diego Metropolitan to settle the claims. "I would hope that there will be a resolution without court," he told Credit Union Journal.
Officials at SDMCU did not immediately return a phone call seeking comment.
