Lusitania Federal Credit Union's application for a-thrift charter may herald future conversion bids, analysis and Observers say.

More credit unions will try to convert to thrifts for a variety of reasons, including cashing in on an institution's net worth, raising capital for expansion, and escaping testy regulators.

In fact, several credit unions are waiting to submit conversion applicati9ns, industry sources say. At least one is ready to convert because, like Lusitania, it believes the National Credit Union Administration discourages high mortgage concentrations and is too restrictive when it comes to mortgage lending.

"What we're seeing here is something that's a long-term trend," said Bert Ely, an Alexandria, Va.-based consultant.

Mr. Ely said the chance for profit will lead officials of larger credit unions to convert to stock charters, just as mutual savings bank officials have done.

Also, credit unions that want to expand will convert to a stock institution to raise capital, Mr, Ely said.

Some credit unions will try to convert because they predict their tax-exempt status. will be stripped away in the near future, said James Fleischer, an attorney for Silver, Freedman & Taff, a Washington-based law firm that has discussed conversions with credit unions. These credit unions want to be ready.

"one day credit unions will be taxed just like banks and thrifts are," he said. "I don't know when that is, but it will happen. And there are those in the industry who want to be in the forefront of that, rather than face it" unprepared.

If a large number of credit union convert the industry's future could be up for grabs. said James Barth, an Auburn University economics professor.

"Once you have one charter conversion, you'll have more," he said.

"Once it starts to happen, you get to tough questions like whether we need this credit union system, whether we need this separate insurance fund, this separate regulator."

But no one is expecting a wave of conversions soon. And some doubt more than a few institutions will try to convert.

Credit union officials. and observers say for now the industry's tax exemption is a strong motivation to remain within the fold.

Also, credit unions eyeing conversion would have to pay more for deposit insurance.

Ed Furash, chairman of the consulting firm Furash & Co., said he sees no overriding reason for credit unions to change charters.

"I do not think that this is a groundswell," he said. ".It's something a particular credit union might want to think about." Any future conversion bid "reflects more particular choices by an institution."

Indeed, while Lusitania thinks its future would be brighter as a thrift, some credit unions with even higher mortgage concentrations than its 89.5% ratio don't plan to follow.

Thirty-one credit unions have a higher concentration-of realestate loans than Lusitania - and like Newark, NJ.-based institution have had run-ins with the regulator - but none contacted for this story said they plan to apply for a thrift charter.

Brooklyn-based Polish and Slavic. Federal Credit Union fought with the NCUA in the early 1990s because most of its loan portfolio was in real estate, including nonconforming multipie family residences.

During a six-week period in 1991 the NCUA forced it to sell off all its mortgages to the secondary market and investors, said Marcin Sar, president of the $348.9 million-asset institution.

Converting to a thrift charter "did cross our mind, but we never followed up on it," said Mr. Sar. "We were so angry we looked for another option."

Eventually the NCUA eased off; mortgages now represent 95% of the credit union's $134.6 million portfolio,

Mr. Sar added that working with NCUA helped improve some of the credit unions' standards.

Brockton ( Mass. ) Credit Union also had a confrontation with the NCUA in the early 1990s, when it was converting to federal insurance. The agency initially tried to set limits on the lending but changed its position after a year.

"If NCUA maintained the attitude they had initially. I could be more sympathetic with Lusitania," said John J. Svagzdys, president of the $435.4 million-asset institution.

"But in light of [NCUA Chairman Norman] D'Amours' attitude that credit unions should make more loans, I see no need of them doing what they're' doing."

Whether any credit union ever converts depends on actions taken by Congress and the regulator.

Next week Congress will be looking at the issue of conversions during a hearing on the industry held by the House Banking Committee. Congress may try to impede such transactions, Mr. Barth predicted.

Then there's NCUA, whose track record indicates it has no desire to see credit unions jump to another regulator.

Earlier this year NCUA criticized law firms for pushing thrift conversions to credit unions. It then seized an Oklahoma credit union that was contemplating conversion, and increased supervision of Lusitania.

This month it blasted the Office of Thrift Supervision for easing the conversion process for credit unions, and last week the board adopted a interim final rule giving it final say over any such conversion.

Mr. D'Amours said the agency isn't trying to hamper conversions and any stepped-up supervision of credit unions considering conversion was due to safety and soundness concerns.

Few credit unions want to convert, he added, because the members believe they're best served by their current charter.

"If the membership is properly informed about a conversion, it's unlikely to go forward" because convening requires a vote by members.

But NCUA is taking no chances. Last week it sought comments on whether a credit union should be allowed to convert at all, even if the members approved.

"That's ludicrous," Mr. Fleischer said. "There is no statute anywhere, nor is there precedent, that says any institution, with the support of its member can't determine its charter."

Ten Largest Credit Unions With High Mortgage Concentrations Assets Total mortgages In millions to total loans Brockton, Mass. $435.43 91.27%Polish and Slavic, Brooklyn 348.89 95.04Credit Union Central Falls.Central Falls R.I 304.39 97.20Jeanne D'Arc, Lowell, Mass. 263.86 91.79Self Reliance NY, New York 236.59 93.79Polish National, Chicopee, Mass. 171.09 90.69Crescent, Brockton. Mass. 168.88 94.90Greenwood, Warwick. RJ. 99.02 90.89Ukranian Self Reliance,Philadelphia 81.80 95.11Dexter, Central Falls. RJ. 77.47 91.47

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