FORT COLLINS, Colo. — Now facing a stream of angry reactions to the “mum's the word” handling of the NCUA conservatorship of Norlarco Credit Union here, Chris Myklebust, state commissioner of financial services will also have to cope with state legislators who vowed to revisit a state statute that in fact did not exist.

“It seems the Watergate lesson has been lost,” said one credit union CEO, who asked to speak on background. “I'm sure the employees at Norlarco have had, and continue to have a hard time with this secret handling of what happened. It's always better to deal with problems in an open manner, rather than trying to cover them up. In the end, it just backfires. The membership can't be feeling very confident about how this was handled.”

Norlarco, with $350 million in assets, was Larimer County's largest credit union. It's been brought down by large mortgage delinquencies. In the last quarter (ending June 30) the amount of real estate loans between two and six months in arrears went to nearly $56 million from $6 million, a massive jump.

Finally speaking to the hometown newspaper, The Coloradoan, Myklebust seemed to place the problem at the feet of the larger, mortgage meltdown. He told the paper that some of the problems can be blamed on the subprime lending meltdown and the domino effect it's had on banks, mortgage companies, the stock market and hedge funds. He said credit unions nationally are having to deal with the subprime markets, but on a larger scale, “a lot of credit unions have done a good job of staying out of that market.”

At that time, however, it was unknown that Norlarco had been granting construction loans to out of state residents (who had very good credit scores) and were buying investment properties on the west coast of Florida.

The newspaper has since run several stories and a reader's blog is on fire with outrage over the membership being kept in the dark about a local financial cooperative being taken over by federal regulators with nary a word said about it. Once the Florida connection was made it got worse.

All this may assist the NCUA's new strategic initiative of forwarding transparency and openness in credit union operations and spur state agencies to do the same, despite some objections voiced by CU trade groups. While each state's laws vary (Florida having one of the most open records laws in the country) the various legislatures may find a new purpose in putting more sunshine on how a CU conducts its lending operation.

What has turned out to be a crazy, get-rich-in-real-estate loan scheme with several players that either hooked Norlarco (and the other involved CUs) into a snare of high-risk business loans or whether the CU management and board knew just what they were getting into is open to question, as all players refuse to answer that obvious question. But the possibility of further litigation may be heard sooner rather than later when more facts come to light.

In the meantime, Myklebust is busy assuring readers of The Coloradoan that member's deposits are safe and covered against loss by the NCUSIF.

The former chairman of Norlarco, John Olienyk, (from 1991 until the conservatorship) told the paper that residential construction loans posed the biggest problems for the credit union's balance sheet.

“We had construction loans on the books from around the country,” including Florida, said Olienyk, associate dean of the College of Business at Colorado State University. When the downturn hit the RE market and buyers began to default in droves Norlarco felt the hit.

Olienyk also blamed the problem on the overall housing slump, including subprime mortgage loans, rising interest rates, decreasing demand and record-level foreclosures.

“All of those things combined to depress housing prices, so we got the slump in real estate that we are witnessing.” The local construction market, while not strong, has not been the primary cause of the problem, he said.

But none of that explains how or why Norlarco dipped its members' money into a RE development just east of the Gulf of Mexico. Regulators were monitoring the credit union from early in the year, and reached the point where they wanted more

direct control over the resolution of the loan issues, Olienyk said.

The new disclosures find current CEO Bob Hamer trying to maintain a business-as-usual stance. “We are not going to close our doors,” he told the paper. “What typically happens … if an institution is having problems, it will either work through them or arrange some merger or acquisition with another institution.” He added that Norlarco is not working on a merger or acquisition. “I believe the institution will do just fine.”

One reader posted the following comment on the message board of the paper: “Take a look at Norlarco's vision statement as of this morning: https://www.norlarco.com/why_norlarco/mission_statement.asp.”

“Norlarco Vision: 'To delight our members by promoting their financial success in a dynamic environment.' Who wants their financial institution to be selling snake oil to 'delight' high rollers and people who manage their money poorly, but raise their hand first when lending standards are loosened? So much for deregulation! Sometimes, the prudent answer should just be NO! Send the white collar crooks who allowed it to happen to jail…or, at least take their significant assets and reduce their standard of living, so they can sweat a little like the rest of us–those of us for whom, despite good credit, will now be finding it harder to borrow. Think not? Think you are immune?”

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