AUSTIN, Texas – Velocity CU received confirmation from the Texas Credit Union Department that as of Feb. 16 the $495 million CU had successfully resolved all areas of concern related to the Risk Alert (05-RISK-01) issued by the NCUA in June 2005. Texas Commissioner of Credit Unions Harold Feeney explained that shortly after the NCUA issued the risk alert, his office did a special review of its state-chartered CUs that did third-party indirect lending based on call report information. Once the names of the CUs were compiled, Feeney evaluated their contracts with their providers to ascertain if they were in compliance with NCUA requirements. The Risk Alert was directed to all federally insured credit unions involved in third-party indirect sub-prime lending and loan participation programs and established extensive requirements for CUs' due diligence, financial analysis and monitoring of the programs. Velocity CU has been a client of Centrix Financial LLC since September 2000, and its Centrix Portfolio Management Program has been in operation since1998. The CU says it has continued to be a participant in the PMP even though it couldn't fund new loans since the Risk Alert was issued. When Velocity's contract with Centrix was evaluated, Feeney said he found a "few shortcomings" that needed to be resolved for the credit union to be in compliance with the NCUA's Risk Alert. He recalled that the problematic part of the contract concerned whether loans would continue to be insured by Centrix's insurer Everest National Insurance if the CU decided not to have Centrix service its indirect loans. But Velocity President/CEO Larry Strong says the review by NCUA examiners and the Texas Department of Credit Unions was more extensive than that and included things like an evaluation of the $495 million CU's static pool and cash flow report. In addition, the CU had to design a yield curve on the loans it did through Centrix. "It was a very time consuming and expensive exercise," he said. Once the contractual issue was resolved and NCUA and Centrix reached an agreement on what the contract modification would read, Velocity was released from the Risk Alert restrictions. According to Feeney, there are still about half a dozen other credit unions in Texas working on making similar revisions to their contracts with Centrix. Strong said, "This represents the culmination of several months of hard work in order to comply with Risk Alert requirements and regulatory restrictions. Velocity has worked closely with the regulators to resolve these issues, and today our past and present due diligence and monitoring efforts have been officially recognized as having met the Risk Alert requirements." As for the Risk Alert, he said he "never understood why NCUA issued it. There were some credit unions who screwed up the Centrix program and others who got it right. This was a case of the innocent paying for the guilty. Being accused of not doing your due diligence is insulting, it's an innuendo that you're not conducting your credit union in a safe and sound manner." He added that, "It's not NCUA's role to come in and tell us how to run our business. They keep telling us to serve the underserved, and that's what Centrix does. Credit unions take the risk to serve the underserved and theN NCUA comes back and says "no, we have to take a look at that." It's all very confusing." -

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