BY MURRAY HALPERIN
As NCUA prepares for the release of further guidance on the matter of commercial lending, now is a good time for credit unions to review their MBL policies and procedures. This first in a two-part series offers compliance advice regarding personal guarantees, supervisory expectations and commercial real estate management.
Part 1 of Biz Lending & Insurance Center Inc.’s (BLIC’s) “Getting Ready for NCUA’s New Member Business Rules” will focus on:
- Removal of the Personal Guarantee Requirement
- Managing Commercial Real Estate Concentrations
BLIC will produce Part 2 and beyond when NCUA provides additional guidance for the new regulations.
In the overall scheme of lending products in the credit union industry, member business lending (MBL Part 723 of NCUA Regulations) may still be considered a youngster. The NCUA Board distributed its first regulation governing MBLs in 1987. Since then it has made a number of revisions and amendments to incorporate provisions, including section 107A of the Federal Credit Union Act (FCU Act). This section was enacted into law in 1998.
Biz Lending & Insurance Center, Inc. was incorporated after NCUA significantly amended section 723 in 2003. BLIC was formed for the specific purpose of working in conjunction with credit unions and their CUSOs to help find quality commercial loans and to assist the credit union in managing risk.
Section 723 prescribed the exact guidelines that every credit union had to follow if it wanted to participate in a product that, up until then, was mostly serviced by the banking industry, insurance companies and the finance industry. The word “prescribed” in this paragraph becomes an operative word in the new guidelines and in this white paper.
Section 723, as written, had many hurdles to overcome with regard to competitiveness, and we believe it limited most credit unions on the type of commercial loans and collateral they could attract. Despite these hurdles, the credit union industry, as usual, found its market and way into MBLs. And even after the large downturn in business between 2007 and 2009, the industry has created a sound base of loans. According to NCUA, that base of loans has grown to $56 billion as of September 2015.