FORT COLLINS, Colo. - In a move that will ripple through the credit union movement, NCUA on Friday announced it has begun negotiations with three Colorado credit unions to buy the healthy assets of Norlarco CU, the once-$340 million institution that failed because of loans made to far-flung real estate developments in southwest Florida.
NCUA's decision to abandon a five-month effort to run the credit union under conservatorship and to assume some $240 million of Florida loans made by Norlarco, indicates the federal regulator may also be ready to assume as much as $260 million in loans made in the same real estate developments by two other failures, Huron River Area FCU and New Horizons Community CU.
The rapidly falling value of these $500 million in real estate loans will diminish NCUA's ability to pay a dividend on the National CU Share Insurance Fund next year, or in subsequent years. NCUA officials would not comment on the specifics of the proposed Norlarco sale, which will be a purchase and assumption, with a Colorado credit union purchasing the healthy assets of the credit union and NCUA assuming the bad assets, including the Florida loans. "We've come to the conclusion that this was the best way to resolve this case," John McKechnie, chief spokesman for the agency, told Credit Union Journal this weekend.
In a letter sent to members last week, NCUA said the six Norlarco branches will continue to operate through the sale process, which they hope to complete in December. Members have been fleeing Norlarco since a secret conservatorship by state regulators was made public in July. Since then, members have withdrawn $52 million in savings, about 17% of the credit union's total.
Norlarco and the other two credit unions were involved in a real estate speculation scheme, known as Millionaire University, in Florida Gulf Coast communities of Cape Coral and Lehigh Acres. Students enrolled in the get-rich real estate investment scheme were sold homes to be constructed with guarantees of a 14% return a year before they were to flip them in the then-over heated Florida market.
Since then, the market, like the rest of the country, has cooled, forcing thousands of borrowers in Millionaire U to default on their loans.
