CENTENNIAL, Colo. - NCUA's June 2005 Risk Alert Letter concerning guidelines for credit unions involved with third-party subprime indirect vendors is apparently hurting the business of one of the largest subprime indirect lenders doing business with credit unions. Centrix Financial, Centennial, Colo. on Sept. 15 laid off 150 people representing 10% of its workforce of 1,500. Centrix Financial VP of Communications Lauren Sides confirmed the company's business has been "slowing," adding that she couldn't provide exact numbers. "NCUA's Risk Alert and the subsequent visits or phone calls by NCUA examiners to credit unions has slowed third-party indirect lending in the area," she told Credit Union Times. The slow down, she said, has been "across the board in all the states we do business in and by all sizes of credit unions." Since 1998, Centrix has underwritten 200,000 loans worth $3 billion for credit unions. The company works with 300 CUs in 42 states. In its Risk Alert Letter, NCUA discussed its heightened concern about credit unions' increased involvement with subprime indirect lending, specifically what the agency feels is the need for CUs to have adequate controls and due diligence in place. NCUA further warned federally insured credit unions in its letter that, "Failure to implement effective controls and monitoring systems will result in frequent supervision contacts and may result in a CAMEL downgrade and other appropriate administrative actions." The NCUA Board advised FICUs that, "Adoption of any third-party's subprime underwriting criteria without careful and comprehensive evaluation is unsafe and unsound." Along with its letter, NCUA included the revised questionnaires examiners were going to use to evaluate CUs' program, and credit unions were encouraged to review the questions, "compare them to your existing and/or planned activities, and then be in a position to effectively respond to and address questions that may arise." Centrix's Sides said the drop-off in the number of CUs using Centrix to make subprime indirect auto loans "will be temporary." "Credit unions are not making loans while they adjust," she stated. Sides confirmed that Centrix - a private company not supervised by NCUA - has had several recent meetings with NCUA "to help NCUA understand our program and our due diligence requirements for credit unions that do business with us. We want to gain a better understanding of their needs and vice versa. Our credit union partners have told us they're eager to get back in business with us," she said. Sides added that Centrix so far has worked with NCUA "on a number of points" and prepared an addendum to their credit union contract that "more clearly addresses the points we've gone over with NCUA." Sides also confirmed reports that Centrix is continuing with plans to reduce its dependence on credit unions as a capital source. "Credit unions have been our main partners since Centrix began and will continue to be an important partner for us. But it's been our strategic plan for some time to diversify to different types of lending sources," said Sides. When asked what she meant by "lending sources," she said "larger institutional investors or banks." -
ebarr@cutimes.com
