Norlarco Credit Union's top executives mismanaged its residential loan program and relied on it too heavily as a source of income while state and federal inspectors weren't rigorous enough in their examinations.Those are the conclusions of the report by the NCUA's inspector general on the now-defunct Ft. Collins, Colo., credit union, which got into financial trouble because of its loans to real estate construction in Florida. The NCUA placed the credit union into conservatorship and eventually sold its assets to Public Service Credit Union in Denver.The report said that the credit union's management failed to conduct due diligence on its third-party vendor, did not adequately oversee its residential construction lending program, created a concentration of risk by committing to fund $30 million worth of construction loans each month, and did not develop adequate policies and a strategic plan to guide the credit union and the loan program.The credit union management's "poor strategic decisions" left it "overexposed to unfavorable economic conditions."For example, the report noted that state and federal inspectors had determined after reviewing a sampling of loans that 55% of them were made without requiring borrowers to verify the income stated on their application and 31% did not require borrowers to disclose their income or provide bank statements.At the time the NCUA took control, 97% of the credit union's residential loans were for Florida properties, and only 1% were in Colorado.The inspector general's office also concluded that the NCUA and state examiners did not view the loan program "as safety and soundness concerns fraught with risk."The office did not make any recommendations for action to the NCUA because it said that since the credit union was declared insolvent, the agency has provided additional guidance to credit union management and examiners.The NCUA did not respond to the criticisms of its inspection process though NCUA Executive Director David Marquis said in a written response that the agency had provided additional guidance to credit unions on how to prevent similar problems from recurring.The agency owns 1,091 houses it acquired during its conservatorship of Norlarco, Huron River Area CU, and New Horizons CU. The last two CUs are near Ft. Myer, Fla., which has the highest foreclosure rate in the nation, according to RealtyTrac. The agency is responsible for taxes and upkeep of the properties and also pays to have security personnel patrol the area.The houses were financed by loans from those three now-defunct credit unions.The inspector general's report is available at: http://www.ncua.gov/OIG/Documents/OIG-09-01_MLR_Norlarco_CU_5-11-2009.pdf–[email protected]