FT. MYERS, Fla.-The collapse in real estate values in three Florida Gulf Coast counties, bringing thousands of foreclosures and pushing dozens of credit unions and banks into the red, is being partially blamed on an ill-fated credit union-backed real estate scheme.
The scheme, known as "Millionaire University," has already sunk three credit unions and pushed area home values down by 50% or more, far higher than the national average, causing tens of millions in losses to many of the region's lenders not even involved in the projects.
"What's causing the numbers is Tampa's a bad market; but really the southwest Florida market, in Ft. Myers," said Tom Dorety, president of Suncoast Schools FCU, which reported a $25.7-million loss for the third quarter, and a $51.9-million loss year-to-date
Suncoast Schools moved $24 million of new funds into its loan loss provision in the third quarter to provide for increased losses, said Dorety. Much of the expected losses are in those three counties where the state's largest credit union has more than $1.7 billion worth of real estate loans, a third of its portfolio.
That market has been particularly depressed by widespread foreclosures in developments in Cape Coral and Lehigh Acres, where three credit unions financed a get-rich-quick real estate scheme. The credit unions, Norlarco CU, Huron River Area FCU and New Horizons Community FCU were all taken over by NCUA. NCUA ended up owning more than 2,000 properties.
NCUA's sale of many of the loans for 25% of their book value helped push surrounding property values down by 50% or more since 2006, according to Dorety. "There's a lot of properties on the market," Dorety said. "Some of those properties are going for 20% to 25% of the loan value."
His point is that even if the credit union-backed scheme didn't cause the region's real estate woes, it certainly exacerbated them.
As a result of the bust, thousands of workers in the construction industry have fled the area, many of them to the Texas and Louisiana Gulf Coast, where communities are still rebuilding from the numerous hurricanes that have hit in recent years, according to Dorety.
"The bottom line is Ft. Myers is not in a recession, they're in a depression," said Dorety, whose credit union is located about 100 miles north.
Several other Tampa-area credit unions are suffering from the fallout of the region's real estate woes; GTE FCU reported a $21.9-million loss for the first three quarters and Tampa Bay FCU had a $1.5-million loss for the third quarter, but as the largest local financial institution in the region, Suncoast Schools has been impacted more-even though it didn't participate in the Millionaire U scheme.
Dorety said his credit union's numbers will only get worse in the short term. He hopes the additional loan loss provisions will cover the expected increase in charge-offs. He has been working to cut expenses. While he has no plans to lay off staff or close any of his 50 branches, he has reduced the number of employees by 70 due to attrition.
The credit union giant's troubles come at an inopportune time for Dorety, who, as chairman of CUNA has emerged as a national spokesman for credit unions. Read more about how red ink is spreading across the country in a related story on page 1.
