ALEXANDRIA, Va. - Credit unions are urging NCUA to expand powers to make member business loans by increasing permissible loan-to-value ratios on some loans, lowering equity requirements and reducing the minimum holdings for loan participations.
The suggestions offered by credit union executives to NCUA reflect the growing importance of business lending to credit unions, which almost doubled the MBL portion of their loan portfolios in recent years from just 2% five years ago.
"In our opinion credit unions must be equipped to fairly compete with banks or consumers will be forced to seek higher-cost business loans at other financial institutions," wrote Mendell Thompson, president of America's Christian CU, in a comment letter on NCUA's business loan proposal.
Thompson, whose credit union primarily makes loans to churches throughout the country, suggested that NCUA ease some of its current LTV requirements by enacting a tiered LTV standard, all the way up to 100% LTV allowed for car, truck, bus and SUV loans for small businesses.
Under his suggestion, there would be an 80% LTV maximum for non-owner occupied construction and development projects secured by the project; an 85% LTV for owner occupied C&D projects; and so on.
"It is our opinion that such tiered LTV limits would enable us to better compete for potential borrowers who have excellent credit and repayment ability," wrote Thompson, who noted his credit union's $350-million MBL portfolio has a negligible 0.03% delinquency ratio.
Credit union representatives said the current 80% LTV requirement for business vehicle financing makes it difficult for them to compete in their markets.
Telesis Community CU's Jean Faenza, who heads the credit union's Business Partners LLC CUSO, suggested that LTV ratios be based on the credit worthiness and qualifications of the borrower and not be regulatory limitations.
Leave Assessments To CU Boards
Gary Oakland, president of BECU, suggested that NCUA leave assessments on C&D LTV limits, minimum borrower equity for certain loans and other issues to a CU's own board, rather than set a regulatory standard. "BECU believes that allowing credit unions the flexibility to create their own business loan policies will give them additional tools to provide these types of loans on a more competitive basis, while satisfying safety and soundness requirements," wrote Oakland.
Oakland also urged NCUA to allow credit unions to provide additional mortgage loans to members for personal investment purposes without having to count those mortgages as MBLs, thus bringing them under the 12.25% of assets MBL cap.
Navy FCU's President Cutler Dawson urged NCUA to seek approval from Congress to increase the current 15-year limit on investment property mortgages to 30 years. "To effectively serve their members," wrote Dawson, "credit unions need authority to make investment property mortgages to standards widely used in the industry."
Tom Davis, the head of the National Association of CUSOs, recommended that NCUA lower the minimum amount of a loan it sells off in participations from the current 10% to 5%. "The loan participation rule is outdated," wrote Davis. "Loans are being originated by CUSOs, which were never contemplated by NCUA when the loan participation regulation was last revised."
The current 10% requirement, wrote Davis, was enacted to ensure that a credit union "has enough skin in the game." But, he said, a 5% requirement would serve the same purpose, that is, that the loans being sold to participating credit unions are of good quality.
Allow Prepayment Penalties
Several CU advocates urged NCUA to allow prepayment penalties on MBLs.
"Failure to allow borrower prepayment penalties," wrote Kent Moon, president of Member Business Lending LLC CUSO, "prevents credit unions from entering the secondary market on (U.S. Small Business Administration) 504 programs and puts them at a competitive disadvantage in the marketplace."
Frank Berrish, president of Visions FCU, also urged NCUA to reconsider the current prohibition on prepayment penalties. "We have experienced a number of loans that pay out before maturity due to temporarily more advantageous rates and terms," wrote Berrish, "This puts the credit union at a disadvantage since the other commercial lenders have prepayment penalties to compensate them for the large underwriting and servicing investment it takes to make a commercial loan, and are less likely to lose their loans."
Others suggested that NCUA exempt certain loans from being counted as MBLs, to ease the 12.25% MBL cap.
Maurice Smith, president of Local Government FCU, said his credit union specializes in making loans to such government entities as local fire departments, which are guaranteed by municipalities. Loans like that, wrote Smith, should be exempt from the MBL caps.
Several CUs urged NCUA to increase the 12.25% MBL limit, but that will require an act of Congress, as is being requested in the CU Regulatory Improvements Act.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com/ http://www.sourcemedia.com/
