TALLAHASSEE, Fla. - With examiners on record that member business lending will be scrutinized (CU Journal, April 18), leaders of CUSOs that specialize in MBLs said they are finding regulators' focus is on loan participations, loan monitoring, and simply poor underwriting practices.
"I think the situation is often different for credit unions using professional underwriting CUSOs and those that are not," suggested Jim Gallagher, president of Member Business Solutions here. "Those that have not had good systems in place to underwrite credit with good global cash flow analysis are getting some resistance from examiners who say they need to rethink procedures. Our partners don't have that because examiners are pleased with the product our credit unions have."
Whether the credit union is making business loans through a CUSO or not, Gallagher says his CU partners see examiners tightening interpretation of loan monitoring schedules.
"Different examiners have different interpretations about what the monitoring schedule should be," Gallagher said. "The Part 723 business regulation is not very clear on that. It just says you have to monitor the credit, but not how and when. We're seeing that sometimes examiners have a different opinion than what's reflected in the credit union's policy as to when the loan should be reanalyzed. It comes down to a little negotiation about a schedule everyone can live with."
The CUSO leaders agree that examiner scrutiny has not yet affected underwriting of business loans. Kent Moon, president and CEO of the South Jordan, Utah-based Member Business Lending, said he expects it never will.
"Underwriting is always consistent," Moon said. "If you have to adjust underwriting because of market conditions, your underwriting was flawed to begin with."
Conservative Underwriting
CU Business Capital's Murray Halperin sees his Miramar, Fla.-based CUSO's underwriting guidelines also remaining consistent, "unless examiners change requirements. We are a very conservative underwriter and have always been. I think a lot of what regulators are looking at now are high credit union purchase participations and what the CU does internally to make sure it's a good deal. What's most important with the participation is whether the credit union has an understanding of what the deal is they are buying, and not just signing off on what the lead underwriting group sent them. They really need to dig into what the participation is, what the participation agreement really says, what recourse they have if it goes bad...I think NCUA is really going to be looking at that."
In Portland, Ore., Larry Middleman's solution for CU Business Group member credit unions to avoid additional scrutiny is simple: "We stick to what we consider solid, fundamental underwriting standards and resist the temptation to get out there further for competitive reasons. Those kinds of mistakes are coming back now to haunt the industry."
More
To read more about what examiners are looking for today and related stories on member business lending, visit www.cujournal.com and type the following bolded terms into the search bar at the top right of the home page:
State Examiners Tightening Scrutiny
Bad Connection? CUs Are Worried Examiners Aren't Getting The Message
More Powers Sought On Member Business Loans
For more info on this story:
MBL: http://www.mblllc.com/
CUBC: http://www.cubusinesscapital.com/
MBS: http://www.mbsllc.org/
CUBG: http://www.cubusinessgroup.org/ (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com/ http://www.sourcemedia.com/
