The Credit Union Journal
The National Credit Union Administration is moving to sell a failed Fort Collins, Colo., credit union rather than trying to resurrect it.
State regulators took over the $320 million-asset Norlarco Federal Credit Union in May, and the NCUA's decision to find a buyer, or buyers, for it means that the agency will assume liability for about $238 million of nonperforming loans outstanding on two failed real estate developments in South Florida.
That is on top of another $173 million of loans related to the same projects for which it is already on the hook. With its options few, the NCUA said it was negotiating with three Colorado credit unions to sell the remnants of Norlarco. Though the NCUA has agreed to assume all of the Florida loans, many of them in default, Norlarco's capital has been nearly depleted, leaving only the largest credit unions as viable buyers.
The $2.2 billion-asset Ent Federal Credit Union in Colorado Springs is one of the three institutions kicking the tires at Norlarco. Spokesman James Moore confirmed it is among the suitors and suggested a bid might be forthcoming by next week. "We haven't finished our review of their situation," he said.
It was unclear last week who the other suitors might be.
The financial situation at Norlarco has deteriorated in the months since the regulatory takeover became public. State regulators in Colorado took over the credit union in May but kept the action secret, hoping to stave off a panic. The NCUA made the takeover public on July 24, and since then depositors have pulled $52 million of savings out of the institution.
"We've come to the conclusion that" merging Norlarco with one or more credit unions "was the best way to resolve this case," said John McKechnie, the NCUA's chief spokesman.
Two other credit unions that failed this year, Huron River Area Federal Credit Union in Ann Arbor, Mich., and New Horizons Community Federal Credit Union in Denver, also had exposure to the Florida projects.
The NCUA has sold New Horizons and is still running Huron River under conservatorship, but the Norlarco situation is particularly troublesome because 16 credit unions and two banks had bought participations in roughly 71% of the troubled loans.
The situation at Huron River has stabilized, but the credit union is also expected to be sold by NCUA in a so-called purchase and assumption transaction, under which the NCUA sells a credit union's healthy parts, mostly deposits and real estate, and assumes liability for failed assets, like the Florida loans. Huron River, which lost $60 million in the first three quarters of 2007, has $170 million of South Florida real estate loans on its books.
The failure of New Horizons was another story, caused mostly by its involvement with the subprime auto lender Centrix Financial. New Horizons was sold to the $4.1 billion-asset Security Service Federal Credit Union in San Antonio last June. It had only minor exposure to the South Florida projects, but the NCUA's examination of its loans led the agency to the Norlarco case, according to sources familiar with the situation.
Norlarco and Huron River were the largest lenders on a real estate investment scheme that appears now to have exploded into a major scandal. Aside from leading to the credit unions' failures, the projects have spawned dozens of lawsuits and led to hundreds of personal bankruptcies. Lawsuits filed in U.S. District Court for the Middle District of Florida allege that major lenders like Bank of America Corp., Wells Fargo & Co., and Countrywide Financial Corp. were also involved.
Plaintiffs — mainly investors in the projects — allege in multiple suits that lenders conspired with other promoters on a scheme that induced them to buy preleased homes, for as little as $1,000 down, that were supposed to pay a guaranteed return of 12% in the first year until these investors flipped the properties for substantial gains.
The NCUA, as conservator of the credit union properties in Florida, is accruing millions of dollars in expenses to maintain the properties and pay insurance on them.
