CUSO Woes Mount At Huge NCUA Ward, Texans CU

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DALLAS – NCUA last week reported losses at Texans CU, a one-time $2 billion credit union taken under conservatorship in April, continued to grow in the second quarter, to $11.7 million for the first six months of the year, as net worth for the credit union giant slid all the way to just 2%.

Separately, NCUA succeeded in moving two multi-million dollar lawsuits regarding Texans’ member business loan CUSO to federal court where the federal agency, now representing the credit union as conservator, will have a better chance of winning.

In one case, developers of a Mississippi real estate development allege the Texans CUSO, CU Liquidity Services, formerly known as Texans Commercial Capital LLC, never intended to adequately fund the various multi-million dollar development loans but was just trying to create fees, then pass the loans to other lenders.

In the other, the former president of the credit union’s Texans Financial CUSO claims he is owed more than $1.89 million under a deferred compensation plan.

Troubles at the credit union’s MBL CUSO, mostly large real estate development loans, helped weigh down the one-time high-flying Texans, which has reported almost $150 million of losses since the end of 2008. A separate suit by the former head of the credit union’s Texans Insurance Group LLC subsidiary landed that CUSO in bankruptcy.

The Texans case is the latest of several high profile CUSO-related problems that have prompted NCUA to propose new rules to give it greater supervision over CUSOs.

The 2009 failure of Central States Mortgage Co., for example, cost 25 credit union investors more than $8 million. Several of the same credit union owners also were burned by the 2009 bankruptcy of their CU Fleet CUSO. The 2009 failure of Florida credit union giant Eastern Financial Florida CU was partly attributed by NCUA to bad loans made by its MBL CUSO. The failures of Norlarco CU and Huron River Area FCU were attributed by NCUA to speculative Florida real estate loans sold through CUSOs. In many cases, NCUA had no legal authority to examine or review the financial condition or practices at these CUSOs.

In proposing new oversight of CUSOs, NCUA said the rule will give it additional means to monitor the risks the CUSOs pose to both individual credit unions and to the credit union system, with some CUSOs serving hundreds or even more than 1,000 credit unions. “With this controversial proposal we are in some ways breaking new ground,” said NCUA Chairman Debbie Matz. “[But] this rule is fundamental to monitoring the safety and soundness of the system.”

The proposal, issued for a 60-day comment period, will require every CUSO owned by a federal credit union or a federally insured credit union – which amounts to almost every CUSO in the U.S. – file annual reports with NCUA and the appropriate state regulator that detail finances, general information such as ownership and governance, services offered and customers (including credit unions and non-credit unions) served.

 

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