WASHINGTON - Seeking to stimulate lending, the National Credit Union Administration Board has proposed to relax loan participation rules.
The July 27 proposal would drop a requirement that all parties in a loan participation agree before money is disbursed to the borrower.
Under the proposal, the originating credit union could make a loan conforming to its underwriting procedures, then look for credit unions that want to participate. If an agreement were reached in advance, it would set the loan's underwriting standards.
Industry observers said the plan would make loan participations less cumbersome and time-consuming.
The plan reflects NCUA Chairman Norman E. D'Amours' agenda of beefing up credit union loan-to-deposit ratios and helping small credit unions that lack deposits meet all their loan demand.
"I think it's a move whose time has come, and hopefully we can move on it quickly," Mr. D'Amours said. "The objective is to increase lending and cooperative lending."
A 60-day comment period on the proposal will begin after it is published in the Federal Register.
In introducing the proposal, NCUA staff attorney Mary F. Rupp said loan participations are negligible in the industry right now. But she pointed out that industry officials said the proposal could spur significant growth.
Keith Peterson, an economist for the Credit Union National Association, called the current rules "restrictive." The proposal "should facilitate the process of doing loan participation," he said.
"If you can close the loan and then make an agreement, it makes the process smoother than getting the agreement beforehand," he added.
Mr. Peterson's group, which is based in Madison, Wis., has no figures on the current extent of participations, but he agreed with Ms. Rupp that they are minimal.
The proposal requires the buyer of an interest in a loan to have adopted a policy before entering a participation agreement.
The agency in 1991 considered dropping the requirement that participation agreements precede disbursement but balked because of safety- and-soundness concerns. It worried that originating credit unions might not properly underwrite loans they planned to sell and that participating credit unions might not properly investigate the loans.
The proposal memorandum said those pitfalls could be avoided through participation policies.