WAUWATOSA, Wis. – Credit unions in Wisconsin and elsewhere were tolling the costs of this week’s failure of Central States Mortgage Corp., which have reached at least $5 million and counting.
The 25 credit union owners of the mortgage CUSO charged-off a total of almost $3 million of their stock in the 25-year-old company in the fourth quarter of 2008, according to data disclosed on 5300 Call Reports submitted to NCUA. In addition, several credit unions are also taking hits on Central States loans they participated in.
The Wisconsin CU League, also an owner, is believed to have charged-off the value of its shares.
And several lenders, including Members United Corporate FCU, are working to determine what portion of loans to the company will be either charged-off or written-down. Central States, which provides mortgage services for more than 250 credit unions, closed its doors Monday after Members United called a $33 million loan in default.
The biggest investor in Central States was apparently Guardian CU, the $265 million West Allis credit union, which had an $108,720 investment and $1.3 million loan to the company.
NCUA records show other credit unions exposed to Central States: Sherwin Williams Employees CU in South Holland, Ill., which had $50,000 in stock and a $1 million share of a loan participation; Northwestern Mutual CU $275,000 in stock; FOCUS CU (formerly known as Wauwatosa Employees CU) $225,000 in stock; Aurora Healthcare CU $270,000; Allco CU $255,000; Superior Choice CU $60,000.
Dennis Degenhardt, president of Glacier Hills CU and Central States board member since December, said his credit union will be able to absorb the charge-off of its $100,000 stake. "We’ll be fine, we’re still well capitalized," he told The Credit Union Journal yesterday. "Unfortunately the NCUA action (on the corporates) is not going to help."
"It took everybody by surprise," said Bill Kuter, president of Lifetime CU, on Monday’s closing. "We thought that may have to happen in the future but I think it surprised all the shareholders how quickly the board reacted." The West Allis credit union charged off $100,000 of its Central States shares.
Central States was founded in 1984 by Dick Jungen, who sold a 75% stake in the company in 1997 to 25 credit unions and the Wisconsin league. Jungen, who continued to run the company as president, was fired last July amid allegations he was secretly financing Central States’ secondary funding vehicle, and is now in litigation with the company.
