FORT COLLINS, Colo. — As it seeks to sell off faulty loans andfind eventual buyers for the failed Norlarco Credit Union as wellas an Ann Arbor, Mich.-CU in similar straits, NCUA moved quicklyhere last week to calm jittery members.

Estimates of NCUA's overall loan exposure in Norlarco, HuronRiver Area Credit Union in Michigan and the since-sold New HorizonsCommunity Credit Union of Denver have run as high as $500million.

Acting here last week on the Norlarco failure, NCUA sent out afour-page letter and fact sheet to members detailing reasons forthe regulatory conservatorship and assuring depositors their fundsare safe.

The “letter to members,” signed by Melinda Love, NCUA's RegionFive director and Robert Hamer, president/CEO, also blames theproblems of the Fort Collins Credit Union on the faulty Floridaconstruction loans made by previous management “which exceededprudent risk levels.”

The letter also seeks to explain secrecy surrounding the May“daylight conservatorship” by the Colorado Commissioner ofFinancial Institutions

and subsequent similar action taken by NCUA in

July, all executed to avoid spreading unnecessary memberfear.

The Colorado agency acted so “as not to alarm members untilregulatory steps were implemented to address the situation,” saidthe letter.

Meanwhile, NCUA released financial data here and in Washingtonshowing the CU suffered an 11% erosion in deposits during the lastmonth with agency officials maintaining such outflows are notuncommon following a failure of this size, one that has drawn highcoverage by the local media.

Norlarco had $68.6 million in delinquent loans as of Aug. 31,down slightly from the $70.1 million the previous month but farabove the $6 million in March. The CU has more than 1,000 realestate construction loans on its book of which an undeterminednumber are in participation with some 25 CUs across the U.S.

NCUA confirmed that Norlarco deposits dropped $32 million inAugust to $269 million from the $301 million in July.

Meanwhile in Michigan, a top regulator there said he iscontinuing to work with NCUA to resolve the fate of the $268million Huron River Area CU that also had extended bad constructionloans to a Florida real estate group in the Fort Myers area.

“NCUA controls the process and, of course, we are working withthem as the agency seeks to resolve the situation at the lowestcost,” explained Roger Little, deputy Michigan commissioner.

NCUA said, too, it was moving to “preserve and protect members'interests” in the Huron failure, but gave no timetable when anauction might be conducted on either Huron or at Norlarco.

“As far as we know, it's simply hands off until NCUA sells thebad loans,” said the CEO of a Denver CU who asked not to bequoted.

In southeast Michigan, however, CU sources noted the NCUA-runmanagers of Huron River were aggressively seeking deposits.

“They've been offering some of the highest rates I've seen onCDs,” said one CU executive. “I looked and I see they have CD ratesat 4.75% on six-month CDs compared to the 4.22% average, and 5.2%on 12 month CDs against the 4.47% average.

Regarding NCUA's letter to members seeking to damp worries,Love, who is based in Tempe, Ariz., and Hamer explained that NCUA's“management team members are working with the local management teamthat remains in place. When you walk into a branch office orcontact over the phone the same dependable and familiar staff youknow and trust are still there to assist you.”

The CU's six branches and call center “are open for business asusual,” said the letter, which also assured the CU's 44,000 membersthey are able to obtain loans and mortgages.

In discussing the secrecy, removal of the board and priormanagement, the letter noted that the Colorado commissioner, ChrisMyklebust, had interpreted state law as “preventing advancenotification of the conservatorship.”

This “influenced communications to members,” said the letter,adding, “the purpose and goal at all times was to guard theinterests of members and

protect depositors.”

Disclosure of Norlarco's severe problems on Aug. 22 in articlesappearing in a local paper, the Coloroadan, caused an uproar amongmembers and the public questioning management of the CU inextending loans far afield from this prosperous northernColorado

college town.

The leadership of the Colorado Credit Union Association, whileofficially mum on Norlarco failure, has maintained there weremissteps in the way the state handled Norlarco's conservatorship.Myklebust has insisted he was following strict interpretationsregarding premature disclosure of problem CUs.

Nonetheless, “this has not been a good situation for creditunions,” concluded one Denver CEO.

–[email protected]