The Credit Union Journal
The National Credit Union Administration is in high-level negotiations to resolve the growing liability on Florida real estate loans it inherited from three failed credit unions, according to sources familiar with the talks.
The sources said representatives from the NCUA are in talks with the builder of the Florida homes, which partnered with the three credit unions in real estate developments in Cape Coral and Lehigh Acres.
The two sides are scheduled to meet in mediation Friday to negotiate some kind of settlement of claims, the sources said. They emphasized that no resolution of the claims is guaranteed.
Lawyers for both sides would not comment on the talks.
The three credit unions, Norlarco Credit Union and New Horizons Community Federal Credit Union, both in Colorado, and Huron River Area Federal Credit Union, in Michigan, financed thousands of loans for new homes in the two developments that were meant to be flipped after a year at a guaranteed 14% return for investors. Thousands of the loans have gone into default, leaving the NCUA, as conservator of the three failed credit unions, holding as much as $500 million of loans in the two projects.
At least two dozen other credit unions also hold millions of dollars in loan participations in the two projects. The NCUA is hoping to stave off investors and angry credit unions in court if it can negotiate a settlement of claims.
NCUA representatives said last week that they were confident the National Credit Union Share Insurance Fund had adequate resources to handle the liability. A top NCUA official noted that the fund now has more than $7 billion of assets.
The spreading scandal has attracted the attention of members of Congress. Several who spoke last week at the National Association of Federal Credit Unions' Congressional Caucus said they had been apprised of the situation.
Paul Kanjorski, a Pennsylvania Democrat and strong supporter of credit unions, said he believed the actions of the three credit unions — making loans well outside their home fields of membership — were isolated incidents.
Meanwhile, the banking lobby has begun using the Florida mess to help build opposition in Congress to the proposed Credit Union Regulatory Improvement Act, particularly the provision to expand credit unions' business lending.
"The unfolding situation, where tax-exempt credit unions around the nation invested in a Florida real estate scheme … is a wake-up call on an industry lobbying heavily to further expand their commercial lending powers," said Camden Fine, the president of the Independent Community Bankers of America. "Many credit unions were involved in this out-of-state commercial loan scheme that was far removed from serving their common bond membership and that eventually may cost the National Credit Union Share Insurance Fund millions of dollars in losses."
Keith Leggett, senior economist at the American Bankers Association, echoed his criticism. "Policymakers should view the developments in Florida like the flashing yellow lights at a railroad crossing. If you proceed, there is danger ahead. If you stay put, you are safe," he said.
Fred Becker, NAFCU's president, cautioned against judging all credit unions on the activities a few.
"Camden Fine attempts to tar an entire industry for the unfortunate circumstances of just three credit unions," he said. "Based on the news accounts we've seen, if established in fact, we cannot condone this loan activity, either, and we look forward to a thorough investigation by the state regulators."
