Five years after two big credit union failures left it with 1,700 southwest Florida properties, the National Credit Union Administration is continuing to receive declining prices for hundreds of properties on the depressed local market, according to a new internal study released last week by the agency's Office of Inspector General.
The credit union regulator became the biggest landlord in the adjacent developments of Cape Coral and Lehigh Acres after it took over three credit unions–Norlarco CU, Huron River Area FCU and New Horizons Community FCU–which helped finance a get-rich-quick scheme known as “Millionaire University.” The venture promised unsophisticated investors a chance to earn a guaranteed 14% return by quickly flipping to-be-constructed homes.
The continuing woes of the Florida real estate market have left NCUA with a dilemma: whether to sell the properties as soon as feasible, or to maintain and manage them until the local market improves. But beyond the direct costs to NCUA, the agency is concerned that selling the properties in bulk at a steep discount could cause a decline in values for properties held by local credit unions.
Under any scenario, NCUA expects to realize tens of millions of dollars in losses on the real estate, which will accrue to the National CU Share Insurance Fund and be borne by the nation's 7,200 federally insured credit unions.
The management of the properties, originally 1,741, has proven a huge challenge for NCUA's Asset Management Assistance Center, the Austin, Texas office tasked with disposing of hundreds of millions of dollars in assets obtained from failed credit unions. The new IG's report casts doubt on the decision to hold and manage more than 400 properties.
“We determined that management's analysis regarding whether to maintain or sell the properties located in Florida that were assumed with the liquidations of Norlarco and Huron River Credit Unions, does not appear to be sufficiently comprehensive to support management's decision to hold the properties,” said the report.
Almost immediately after the liquidation of the two credit unions, more than half of the properties, 861, were assigned to other credit unions or banks to satisfy loan participation agreements, leaving NCUA with 880 properties. After a short sale of 30 properties, NCUA had 850 properties remaining with a net book value (the amount of outstanding loans) of $195 million.
The IG's conclusions are based on several factors. First is the declining prices AMAC is receiving for the properties. For 16 properties sold in 2008 the average price was $174,308; the 174 properties sold in 2009 fetched an average of $106,904; but by 2011 the average for the 56 sales was down to just $82,318.
Second, while NCUA hopes a recovering market will result in higher property values, the agency is spending an average of $9,000 to maintain each property and pay property taxes, adding to the recovery costs.
“All remaining properties have seen further decline in value and experienced a large amount of vandalism and theft. This can be determined by comparing the average sales value in 2011 of $82,318 to all prior year average sales figures,” said the IG.
About half of the remaining properties, 220, are being rented by NCUA for an average of $800 a month, which generates $176,000 in revenue per month, or slightly over $2.1 million per year.
AMAC currently expects to sell the remaining 400 properties over the next two to three years.
