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

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

Acting here last week on the Norlarco failure, NCUA sent out a four-page letter and fact sheet to members detailing reasons for the regulatory conservatorship and assuring depositors their funds are safe.

The “letter to members,” signed by Melinda Love, NCUA's Region Five director and Robert Hamer, president/CEO, also blames the problems of the Fort Collins Credit Union on the faulty Florida construction loans made by previous management “which exceeded prudent risk levels.”

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

and subsequent similar action taken by NCUA in

July, all executed to avoid spreading unnecessary member fear.

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

Meanwhile, NCUA released financial data here and in Washington showing the CU suffered an 11% erosion in deposits during the last month with agency officials maintaining such outflows are not uncommon following a failure of this size, one that has drawn high coverage 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 far above the $6 million in March. The CU has more than 1,000 real estate construction loans on its book of which an undetermined number are in participation with some 25 CUs across the U.S.

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

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

“NCUA controls the process and, of course, we are working with them as the agency seeks to resolve the situation at the lowest cost,” 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 an auction might be conducted on either Huron or at Norlarco.

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

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

“They've been offering some of the highest rates I've seen on CDs,” said one CU executive. “I looked and I see they have CD rates at 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 team that remains in place. When you walk into a branch office or contact over the phone the same dependable and familiar staff you know and trust are still there to assist you.”

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

In discussing the secrecy, removal of the board and prior management, the letter noted that the Colorado commissioner, Chris Myklebust, had interpreted state law as “preventing advance notification of the conservatorship.”

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

protect depositors.”

Disclosure of Norlarco's severe problems on Aug. 22 in articles appearing in a local paper, the Coloroadan, caused an uproar among members and the public questioning management of the CU in extending loans far afield from this prosperous northern Colorado

college town.

The leadership of the Colorado Credit Union Association, while officially mum on Norlarco failure, has maintained there were missteps in the way the state handled Norlarco's conservatorship. Myklebust has insisted he was following strict interpretations regarding premature disclosure of problem CUs.

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

–jrubenscut@aol.com

Instant Insights /

Eyeing Norlarco/Huron River Resolution, NCUA Addresses Member Worries

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