The National Credit Union Administration's Inspector General's Office concluded that both the federal regulator and Michigan's credit union supervisor were lax in their oversight of a failed institution, and that the NCUA should step up its efforts to monitor state-chartered credit unions.
The $360 million-asset Huron River Area Credit Union in Ann Arbor was one of three that failed last year after making speculative loans on real estate developments in southwest Florida. The others were Norlarco Credit Union in Fort. Collins, Colo., and New Horizons Community Federal Credit Union in Denver.
The Huron River failure cost the National Credit Union Share Insurance Fund as much as $100 million to resolve, including a $40 million payment to Detroit Edison Credit Union, which took over Huron River. The NCUA assumed some $220 million of troubled loans in connection with the Huron River failure.
NCUA Executive Director Len Skiles said in a response to last week's report that he agrees his agency should monitor potential risks posed by state-chartered credit unions more closely.
He also said the NCUA will examine federally insured state-chartered credit unions that show weaknesses, instead of leaving the exams to state regulators.
The report said NCUA and state examiners failed to monitor and react quickly enough to trends indicating that Huron River was deeply troubled, even after they learned that it had extended hundreds of millions of dollars in loans to fund real estate projects in Florida, well outside of its field of membership.
"We believe financial ratios and trends revealed Huron's worsening liquidity position well before NCUA and the Michigan … [regulator] officially identified the severity of the issue during the January 2007 joint examination," said the report. By that time the credit union's liquidity position had been deteriorating rapidly for 18 months.
The Inspector General's Office also concluded that Huron River's management and board failed to exercise due diligence in evaluating Florida loans, misled examiners, and ignored warnings of the coming Florida real estate bust. The report also said Huron River had strayed from its field of membership and had inadequate liquidity to fund the projects.
