MBL Boost Helps Lift Some GAC Spirits

Agency rule seen as especially favorable for real estate lending as regulatory relief languishes on Capitol Hill.

Each year of late, the pilgrimage to Washington, DC, for the Governmental Affairs Conference features NCUA board members promising regulatory relief.

This year has been no exception, but credit union executives and volunteers can at least Hike the Hill on Wednesday with one recent measure of relief in their pocket: the NCUA’s vote on Feb. 18 to make rather sweeping changes in its member business lending rule.

The NCUA’s action follows its path of taking action on its own to ease restrictions on business lending in lieu of congressional action. The agency’s offer in 2012 to lift the cap for those who earn designation as a low-income credit union, for instance, was taken up by hundreds of institutions. Efforts continue in Congress to completely lift the cap legislatively. They’ve failed year after year, however.

Meanwhile, credit unions and the vendors who help them serve businesses, are assessing the impact of last week’s NCUA decision to give federally insured credit unions more latitude in setting their own risk parameters and tolerances. Just as importantly, if not more, some say, is the new ability to exempt borrowers from providing personal guarantees.

Even though it’s not subject to the cap, Dupaco Community Credit Union ($1.3B, Dubuque, IA) will benefit from that regulatory relief, particularly the ability to lend without requiring the personal guarantees.

That relief will allow the credit union to serve borrowers like accountants and dentists, for example, who might not otherwise avail themselves of the favorable rates and member-centric service at Dupaco, says David Klavitter, the Iowa credit union’s senior vice president of marketing and public relations.

This relief gives credit unions with proven expertise in managing risk the latitude to better serve their members, Klavitter says.

Others point to the rule change distinguishing some MBLs from other commercial loans, especially those secured by residential properties serving up to four families. Once that change takes effect, expected next year, those loans won’t be counted against the cap.

We’re thrilled that the NCUA recognizes the growth of credit unions with regards to each credit union’s member business lending focus and expertise and is now allowing the industry to develop standards commensurate with individual risk appetites, says Susan Verbeck, senior vice president of lending at Community First Credit Union ($1.3B, Jacksonville, FL)

Being able to set our own underwriting criteria as it relates to personal guarantees will position credit unions to better compete in markets where personal guarantee underwriting requirements are allowed to be mitigated by other strengths of the credit,she says.

Meanwhile, Brandon Riechers, executive vice president and chief lending officer at Royal Credit Union ($1.7B, Eau Claire, WI), says while his credit union an active business lender already has some lending rules more conservative than what is required, he does have concerns about potentially onerous changes in 5300 Call Report reporting to accommodate new differences between the statutory cap and safety and soundness.

But, he says, if this move paves the way for the difference for one-to-four family, non-owner occupied residential properties to be real estate rather than MBL from all aspects, then this would be a positive.

More from GAC: To Serve And Prosper

At least two vendors at the GAC say they see the MBL changes helping to push the envelope not only against the cap but in expanding business services in general.

It’s a huge step in the right direction, says Naseer Nasim, president and CEO of Baker Hill, a provider of business intelligence and lending solutions. There’s still more that needs to be done, but this is a huge accomplishment. Now we’ll see how quickly credit unions can build their niche around member business lending, build their expertise and their knowledge set. This will be very key for them.

Barbara Lowman, senior vice president of account processing at Fiserv, says her team already is holding focus group discussions with client credit unions about how to expand business services beyond lending.

We’re talking about how they can get deeper into commercial business, including account analysis, handling deposits, doing more from the statement and reconciliation perspective, Lowman says. This is truly top of mind for a lot of our clients.

February 22, 2016

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