Secret CU Takeover Raises Questions

DENVER – Regulators are working to determine the extent of credit union losses in what amounts to a multi-billion dollar Florida real estate bust that has already claimed three medium-sized credit unions. NCUA reported two of the failed credit unions, Colorado’s Norlarco CU and Michigan’s Huron River Area FCU, continue to hold as much as $468 million in loans tied to the huge developments, Cape Coral and Lehigh Acres, located a few miles from the Gulf of Mexico, near Fort Myers, Fla. A third failure, New Horizons Community FCU, was sold by NCUA earlier in June after the federal regulator agreed to assume millions of dollars of its loans. NCUA and state regulators also are tracking the dozens of credit unions that had bought shares or participated in the loans made by the three institutions. One credit union, Superior Choice CU in Wisconsin, sued Norlarco in federal court last month to recover a $12.2 million loan participation gone bad. Yesterday, Chris Myklebust, Colorado commissioner of financial services, defended the secret takeover of Norlarco. "It was not the standard agency conservatorship," said Myklebust, of the May takeover of the state’s eight-largest credit union, only made public last week. The purpose of the extraordinary secret conservatorship, he said, was to limit any run on the bank. "We’re trying to save the institution. We didn’t want to raise any wide concern among the members," Myklebust told The Credit Union Journal regarding the $375 million credit union. NCUA, which makes its conservatorships public immediately, said it deferred to the state regulator because the credit union is a state charter. During the months since the May conservatorship of Norlarco real estate delinquencies have risen to more than 30% and losses went from $3 million to $5.2 million.