Employees have been laid off, two branches have been closed off and members' loans have been sold as part of a reorganization of Chetco Federal Credit Union since government regulators took over nine months ago.

The Harbor-based financial institution has been in the conservatorship of the National Credit Union Association (NCUA) since September 2011, after the agency questioned CFCU's ability to cover loans commercial customers may default on.

The NCUA is a regulating agency that can assume control of a credit union to ensure its financial stability.

CFCU is a community-chartered credit union serving Coos and Curry counties in Oregon, and three in Del Norte County, Calif.

The recent changes will not affect the security of any money held in the institution, as it is federally insured.

"It walks and talks and feels like any other day at a credit union," said Lynn Heider, public relations and communications official for the Northwest Credit Union Association. "The focus is to put the credit union back in a positive net-worth situation."

The Northwest Credit Union Association is a trade group that oversees credit unions in Oregon and Washington.

The NCUA took conservatorship of CFCU after it determined commercial loans had been made that weren't as solid as anticipated.

"When you underwrite (commercial) loans, you have to make some judgements as to what assets an individual has that can support that loan, the validity of those assumptions; you try and judge the character of individuals," said CFCU interim CEO Gary Jester. "Sometimes things don't go the way everyone planned or hoped. And in the money business, 'hope' is not a strategy."

Members do not need to worry about their funds because deposits are insured up to $250,000, similar to funds in banks that are covered by the Federal Deposit Insurance Corp.

The CFCU suffered two $20 million delinquent loans andndash; one in the first quarter of 2010 and later in the second quarter of 2011, the Pilot reported last fall.

More than 270 loans were delinquent at CFCU at the end of June last year, and 63 of those were business loans with a combined value of $38.2 million.

Business loans represented 56 percent of total delinquencies. The credit union reported that 19 percent of all its loans were delinquent at the end of June 2011.

Two other local credit unions that handle few business loans reported loan delinquency rates of only 1.9 percent.

That's when the NCUA jumped in.

It first fired the entire board of directors, replacing them with Elizabeth Whitehead, regional director of the NCUA.

Then, mortgage loans originating with CFCU were sold to Fannie Mae. Monies generated from those sales are then used to underwrite other loans, Jester said.

Because the money is rolled back into underwriting other loans, there is no impact on the credit union's bottom line. Currently the credit union has assets of $265 million.

Servicing the affected loans andndash; payments, tax, insurance and escrow issues andndash; will now be conducted by Cenlar, a Ewing, N.J., "subservicing" firm. That firm was appointed by Fannie Mae.

According to Heider, Fannie Mae determined CFCU "no longer meets the criteria" to service those loans and hired Cenlar to do that job.

Cenlar sent two letters to members to alert them of the changes.

"We didn't want to lose servicing," Jester said. "But Fannie Mae determined they want someone else to service the accounts. Fannie Mae has tightened the reins on plenty of things."

David Dodgen, CFO of the CFCU, said 577 loans andndash; 9 percent of all loans held by the credit union andndash; were sold to Fannie Mae.

From December 2000 through May 2012, CFCUfunded $991 million in loans; it transferred servicing on $88 million to Fannie Mae.

The credit union continues to write loans except for commercial loans and first mortgages that can't be sold.

Part of the conservatorship review also resulted in the closure of the Klamath and Smith River, Calif., branches of CFCU andndash; and subsequent employee layoffs this spring.

"The credit union is still operating," Jester said. "But the NCUA determined it was not effective or efficient to continue operating a staffed branch in both locations."

Employees andndash; Jester refused to say how many andndash; were either absorbed into other branches or terminated.

"I am not going to give you specific numbers," Jester said of layoffs. "That's our business. Your business (as a credit union member) is to get the service you want. Your business is not who works here or how many. That's an operational issue, not a member issue."

The Pilot attempted to contact several layed off employees. One former employe declined to comment, citing a non-disclosure agreement she and others signed as part of severance packages.

Members of the closed branches now handle their transactions at the Crescent City branch. CFCU has six remaining branches, including the ones in Brookings and Harbor.

"Part of the process of the conservatorship is to analyze and make recommendations," Heider said. "They want to shore up the operation. Not in Chetco's case, but it wouldn't be unusual to start selling some of the portfolio or taking other steps."

So far this year, six credit unions have been liquidated, purchased or assumed throughout the United States. An additional three have been placed into conservatorship. Two have been merged with other credit unions. None are in Oregon.

It has been reported, Jester said, that CFCU has some 36,000 members. That number is actually closer to 25,000 andndash; some members were counted twice, he said andndash; and some have left since the conservatorship was announced.

"We saw money go out, sure," he said, adding that other factors came into play, as well. "The economy andndash; look at the county government here in Brookings, Harbor, Gold Beach, Port Orford and Bandon.

"People just want to make sure everything's safe and sound. We've proven that; we've been in business nine months since we were conserved."

CFCU members shouldn't notice any difference at their local branches, Jester said.

But some whose mortgages were sold to Cenlar encountered problems immediately.

Payments were posted late, resulting in late fees. One was told his mortgage was now being serviced by Cenlar, and when he tried to make a payment to the firm, was told he didn't have an account with them. Others, over the years, have posted criticism saying the firm hadn't paid insurance and taxes from their payments.

Phone calls to Cenlar were not returned.

Cenlar's website acknowledges the problems and refers customers to corresponding departments, some of which are outsourced to India.

"I've heard reports," Jester admitted. "Some people have reported them as not being an A-plus-plus company. I couldn't deny or confirm those reports."

Computer discrepancies that occurred during the transfer of account information from CFCU to Cenlar were rectified as of last Friday, Jester said.

"Computers sometimes don't talk to each other seamlessly," Jester said. "It required a little bit more time. We advised people to hold onto their payments or make payments here while they (Cenlar) loaded information onto the computers.

"Cenlar now has all the accounts listed," he added. "They'll be happy to help you."

The NCUA continues its review.

"There are a number of issues we're still working through," Jester said. "But what members got all last year as far as service? The doors are still open and we can take care of their needs. We're just working with NCUA with where we need to go as far as our future."