CUs Back Expanded MBL Powers; Banks See Soundness Risks

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Credit unions are almost unanimous in their support of NCUA's efforts to ease its member business loan rules, with several credit unions urging NCUA to go even further to facilitate business lending.

"By empowering credit unions to be a source of capital for business development and expansions, we can better contribute to our communities and fulfill the credit union mission to be of service to people with modest means," wrote William Eckhardt, president of Alaska USA FCU, Anchorage, in a comment letter submitted to NCUA on the proposal to expand the agency's MBL rules. "As important as the member service aspect of this proposal, it will also help serve the needs of the nation whose economic health is more and more reliant on the success of small and micro business operations."

"Credit union members," wrote Robin Lentz, president of Cabrillo CU, San Diego, "need an affordable source of funds to finance and grow their small businesses. The proposed rule allows credit unions the ability to serve all of their members with their financial needs."

"The changes to the member business loan rule are a key step towards the goal of credit unions-to be able to provide affordable financial services to our small business members, commented John Mason, business loan officer for Coastal FCU, Raleigh, N.C.

The proposal would make several amendments to NCUA's MBL rules, including allowing CUSOs to originate business loans for the first time; increasing the allowable loan-to-value ratio for MBL vehicle loans from 80% to 100%; allowing unsecured MBLs; lowering the mandatory equity level for construction and development borrowers from 35% to 25% of a project; exempting purchased business loan participations from the 12.25% (of assets) cap on total MBLs.

CEOs: Go Even Further

Several credit union commentaries suggested ways NCUA could go further to facilitate business lending. Don Larsen, president of Community CU, Tacoma, Wash., suggested NCUA remove from the definition of an MBL one- to four-family residential properties that are retirement investments. Cathy Kremer of Melrose CU, New York, suggested that credit unions be allowed to form their MBL policies according to the types of loans they grant to make the process faster and easier.

Casey Wheeler, president of St. Helens Community FCU, St. Helens, Ore., noted that banks are allowed to make commercial real estate loans of up to 30 years in maturity, and suggested NCUA increase the 12-year maturity limit on commercial real estate loans to 25 years.

Other commentaries suggested further reforms, including the elimination of "direct experience" as a requirement for MBL officer; or an allowance to purchase MBL participations from a credit union's own CUSO. As many as half of the almost 150 letters received by NCUA had identical or similar form language, apparently provided by one of the trade groups. More than two dozen letters had a paragraph that read, "Rather than a one-size-fits-all policy as required under the current rule, the proposal would allow a credit union to adopt documentation requirements in its MBL policy that are appropriate for each type of MBL the credit union makes or intends to make."

More than two-dozen bankers submitted comment letters criticizing the proposal, suggesting they will pose new risks to the safety and soundness of credit unions and create additional competition for community banks.

'Threat To Safety & Soundness'

"Your proposed amendments allow credit unions to move away from their historical consumer loan responsibilities to their members, towards more MBL and therefore, create greater risks in their loan portfolios, which your basic credit union membership would not appreciate," wrote John Evans, president of D.L. Evans Bank, Burley, Idaho, and the former governor of the state.

"Credit unions," wrote Nancy Wise, chief financial officer for Four Oaks Bank & Trust, Four Oaks, N.C., "were created for a specific purpose and to address a specific need, the farther they remove themselves from serving that specific purpose by engaging in exactly the same forms of business carried on by commercial banks, the greater potential for the elimination of the competitive advantages afforded credit unions by Congress."

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