CU Lender Halts Operations

Credit union mortgage CUSO shuts its doors

CU Lender Halts Operations became the story on 9 March 2009 when Central States Mortgage Corp., a major credit union mortgage lender based in Wauwatosa, Wisconsin, abruptly suspended originations. The company, a credit union service organisation (CUSO), had been originating and servicing home loans for around 250 credit unions nationwide, making it one of the biggest CU-focused mortgage platforms in the country.

A recorded greeting at the company simply told callers that operations were suspended, while employees arrived to find a note on the door announcing the shutdown. Regulators and customers were caught off guard by the speed of the closure, which came amid mounting legal and funding pressures.

Funding cut, operations wound down

Reports from the credit union trade press later linked the collapse to Members United Corporate Federal Credit Union, Central States’ largest warehouse lender, which declared the company in default and called a warehouse line of more than $33 million. With its primary funding source cut off, the CUSO had little choice but to halt new business and begin winding down.

Central States said it would continue servicing existing loans for its client credit unions, and some staff were retained to help transfer pending applications to other providers. Detroit-based AmeriCU Mortgage stepped in to close and fund a portion of the stalled pipeline, positioning itself as a successor mortgage CUSO for displaced credit unions and borrowers.

Fallout for credit unions and members

The sudden CU Lender Halts Operations headline underscored how vulnerable even specialised, credit union–owned mortgage platforms were in 2009:

• More than 250 credit unions had to quickly find alternative outlets for first-mortgage production.

• Some credit unions took investment and loan losses tied to Central States, forcing writedowns in 2008–2009 financials.

• Borrowers with loans in process faced uncertainty over closing timelines and who would ultimately hold their mortgage.

Central States’ collapse followed the earlier failure of CU National Mortgage, making it the second major credit union mortgage lender to shut down in just a few weeks – and a clear warning that the credit crisis was still working its way through the cooperative system.