WASHINGTON - Want to buy some cheap Florida real estate? Call NCUA.
That’s because the federal regulator has been left holding more than 1,000 residential real estate loans from two major credit union failures that provided mortgages to individual speculators from around the country. And the credit union agency could end up with a dozen more of the loans valued at $3 million that were originated by a third credit union failure.
The credit unions: Norlarco CU, Huron Rivera Area FCU and New Horizons Community FCU, no longer exist, having been liquidated, but their folly lives on.
NCUA has failed to sell the loans, amounting to more than $210 million, as the real estate market in both Florida and the country continues to fall apart, leaving the National CU Share Insurance Fund on the hook.
In an effort to resolve the loans, many of which are in default or foreclosure, NCUA has boosted the size of its Asset Management and Assistance Center, adding eight new contractors to its staff of 16 and hiring two firms to manage the Florida properties, according to Michael Barton, director of the Austin, Texas, operation.
“We’re in the process of trying to convert the loans into REOs (Real Estate Owned) so they can be sold,” said Barton.
NCUA tested the waters for a bulk sale of the loans, marketing $26 million of Huron River Area loans through distressed asset seller DebtX in December. But the loans, about 130 residential mortgages, were pulled because of an inadequate response, said Barton.
“It’s difficult to sell them, even in bulk, because the major lenders do not have a big appetite for this stuff. They already have enough of it on their books,” he said.
There has been interest by other parties who see value in the distressed loans, but the market conditions have made it difficult to finance a purchase, he added. “It’s not that they (potential buyers) aren’t willing to pay; we’ve had offers, but they couldn’t get financing. “We get calls all the time. We have no lack of interest.”
The three credit unions were among more than a dozen lenders who provided low-down payment loans through a get-rich-quick scheme known as “Millionaire University” which sold real estate construction plans to investors from around the country in two south Florida developments, Lehigh Acres and Cape Coral. In exchange for a $1,000 down payment on a $240,000 loan, the investors were guaranteed a 14% return for one year while the homes were supposed to be leased, then promised greater returns when the investors “flipped” the property for a quick profit.
But that was during the overheated real estate market.
The first problem with the speculative sales arose when the promoters of the scheme couldn’t lease the home, thereby negating the promised 14% one-year return. Then, as the national real estate market began to cool, especially in Florida, the properties couldn’t be flipped and the buyers, most of whom only expected to be holding the loans for a short period, were unable to continue making the loan payments.
Hundreds of the buyers have filed suit against the promoters of Millionaire U, and the credit unions, builders and several other entities, claiming the scheme was a fraud.
While the market continues to stagnate, NCUA will continue to hold the assets and manage the Florida property, in hopes that conditions will improve. A sale of the credit union loans in packages is still an option. But NCUA appears to have ruled out packaging the credit union loans with loans in the two Florida developments originated by other lenders.
“It’s feasible, but difficult,” said Len Skiles, executive director of NCUA who once ran the agency’s asset liquidation center. “If the opportunity were there we would certainly explore it, but there are competing interests from the sellers’ point.”
“It’s like herding cats,” said Barton, “Everyone has different value estimates.”
