WASHINGTON — Last year's failure of Huron River Area Credit Union was caused by poor risk management, executives misleading regulators and regulators not being sufficiently aggressive.
That's the assessment of a report issued recently by the NCUA's Office of Inspector General.
The managers of the former credit union, which has since been absorbed by Detroit Edison Credit union, "did not adequately manage and monitor the credit risk within its loan program" and made decisions "that put Huron's continued financial viability at significant risk," according to the report.
The NCUA took over and ran the credit union in February 2007 and sold it to Detroit Edison in November 2007. Detroit Edison bought all the assets though NCUA assumed control of $170 million worth of the former credit union's loans for Florida real estate. Huron River had 38,000 members and assets of $254.6 million. The combined credit union is Michigan's ninth largest with $700 million in assets.
HRACU's managers failed to perform appropriate due diligence on its lender, the Construction Loan Co. and were "not forthcoming" with Michigan and federal regulators about the construction loans. The report added that they "ignored warnings regarding the expected decline of housing values."
At the same time, although state and federal regulators expressed concern about the HRACU's liquidity, they may not have monitored the situation closely enough and financial ratios and other trends revealed problems "well before" the regulators identified them.
NCUA spokesman John McKechnie said his agency had made changes in its examination procedures-including increasing the frequency of examinations and putting a greater emphasis on risk assessment. Last summer, the agency sent a letter to all credit unions on the importance of risk assessment that included a copy of the agency's memo to examiners about what to look for in this area.
In its report, the agency recommended that the NCUA's Region I continue a recent initiative for analysts to provide secondary reviews of national risk reports. It said the agency should consider whether all regional offices should follow this procedure.
Jason Moon, public information officer for the Michigan Office of Financial and Insurance Regulation, said they "welcome the inspector's report and once our agency has completed our thorough review of it we will be able to comment extensively."
The failure of HRACU has been used as an example by the American Bankers Association to back up its position that credit unions should not be allowed additional leeway to make business loans.
In a letter to the NCUA last summer, ABA Senior Economist Keith Leggett said the problems at HRACU were symptomatic of the risks that credit unions take when they make too many business loans because they "reduce resources available for credit unions to meet their primary mission to serve the financial needs of people of modest means."
–cmarx@cutimes.com

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NCUA IG Says Many to Blame for Huron River Failure

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