DENVER -- The unraveling of subprime lender Centrix Financial,LLC into Chapter 11 bankruptcy last September may have had itsroots years ago, but the company's dire troubles turned out to beone of the most jarring events to impact the industry in nearly adecade. By year-end, scores of CUs across the land, perhaps 400with claims reaching $100 million, have been working feverishly topare down the subprime loans on their books while the oncehigh-flying Centennial, Colo., firm tries to recover in courtthrough a sell-off to an East Coast insurance/investor group.

Centrix' near-collapse has left red ink and forced out CEOs andCFOs from an uncounted number of both large and small CUs whilealso triggering a sharp pullback of the subprime market with afiltering down to the indirect market in some locales.

From Austin, Texas, to San Diego and from central Illinois toMiami, there have been numerous cases of CUs grappling with a highratio of delinquent Centrix loans or struggling to receive regularcash payments from Centrix, now with a nearly depleted work forceof just over 300.

Two years ago before NCUA's June 2005 Risk Alert, Centrix had1,500 employees and originally claimed 300 financial institutionsas partners with 7,000 auto dealers having underwritten 250,000loans totaling nearly $4 billion.

That number was reduced to $1.9 billion by the Sept. 19, Chapter11 filing first in a Reno, Nev. U.S. Bankruptcy Court and laterswitched at the demand of creditors to a favored Denver court withthe case assigned to Judge Elizabeth Brown. For its part, despiteits crisis, Centrix has insisted it is meeting servicing demands ofits client CUs and a sampling showed that has been the case in manyareas leading to hope the firm can be set right once the Denverbankruptcy court sorts through sales offers and creditorchallenges. However, CUs hit hardest by Centrix delinquencies andlosses ended up witnessing the departure of CEOs though their exitmay not be entirely related to Centrix, sources said.

Noteworthy in 2006 were resignations in February of RichardGhysels, president/CEO of the $600 million First Financial CreditUnion, West Covina, Calif., and the former chairman of theCalifornia Credit Union League, and in August, Kenneth Sorrels,president of the $1.4 billion Credit Union of Texas in Dallas.

"Look, there are hundreds of credit union CEOs who were smartenough to get caught up only a little on Centrix and then stop andthen there are those in which it was a train wreck," said oneCalifornia CEO who asked not to be identified. One such "trainwreck" was the $296 million New Horizons Credit Union of Denver,the state's 10th largest, which fell under NCUA conservatorshiplast April at the request of state regulators who found large loandelinquencies in its construction and subprime portfolio.

Acting as conservator, NCUA ousted its President/CEO TomGressman, and nine directors who according to the ColoradoDepartment of Regulatory Agencies, had voluntarily "resigned."Months before the move, New Horizons had proudly listed Centrix asone of its prime SEGs welcoming Centrix employees as members.

Centrix also had a strong following in the San Diego market andthe San Diego Business Journal noted the "profit squeeze" on areaCUs due to Centrix in a Dec. 11 article.

It said the $2 billion Mission Federal Credit Union "was forcedto boost its reserve balance by more than $10 million because ofloan delinquencies including many from Centrix."

"As of Sept. 30, Mission Federal held more than $17 million indelinquent loans, or 1% of its portfolio," said the article."That's down from the end of 2005, when its delinquencies reached$25.7 million, or 2% of outstanding loans."

The article added that, "because it was forced to increasereserves against potential defaults, Mission reported a net loss of$3.5 million so far this year."

Officials of Mission FCU were not immediately available forcomment, but the presidents of two other smaller San Diego CUsquoted in the article acknowledged their own Centrix losses withconditions since improved. "We had one of our best years ever in2006 with 1.3 ROA and 11.3% capital and we now have less than$200,000 in Centrix loans," said Joseph Schroeder, CEO of the $269million San Diego Metropolitan Credit Union. Three years ago, wellbefore Schroeder took over as CEO, the San Diego CU had $31 millionof Centrix loans.

Likewise, John Weaver, president of the $55 million GreatAmerican Credit Union, said it now holds about $1 million insubprime auto loans and once held $10 million in Centrix, a fifthof its portfolio. The article noted that Great America posted a netloss of $1.1 million through Sept. 30 after boosting its reservebalance.

When asked what the Centrix lesson might be for CUs, "I think wehave to be a bit more cautious about innovative products," Weaverconcluded. [email protected]