BY PAM EASLEY
The new member business lending rule offers credit union’s an unparalleled opportunity to not only expand their loan portfolios but also extend a valuable service to their members. These six pointers will help your CU chart a roadmap for proceeding in the new regulatory environment so you can capitalize on MBL.
The non-prescriptive nature of the new MBL rule is one our industry has requested for many years. After January 1, 2017, credit unions will have an opportunity to redefine their commercial lending programs in alignment with market conditions while maintaining safe and sound lending practices. This redefinition presents credit unions with the opportunity of developing a sound MBL plan within the new regulatory environment. Such an environment provides for credit unions to work with strategic partners to ensure that the institution has the necessary knowledge to embark on sound commercial and business lending. It also allows CUs to complete an originations’ selection process and take an underwriting approach that ensures borrowers’ ability to repay. This new way of doing things requires lenders to know more about their borrowers than ever before. It also necessitates gauging the amount of information required to responsibly lend in order to determine the level of repayment ability. To offer member business loans to members with this new freedom, individual credit unions need to create a specific plan that takes into consideration their particular goals, their resources and internal knowledge, and their appetite for risk.
Capitalizing on Ideal Market Conditions
While the non-prescriptive environment will present credit unions with the opportunity to engage in MBLs responsibly, current market conditions are ideal for offering commercial loans to members. Business lending in the United States has grown slightly in some areas and is flattening in others. Meanwhile, demand for these loans has continued to grow. Underemployment nationwide has caused an increased need for multi-family housing, while growth in construction starts has led to opportunities to lend in secondary markets. As credit conditions have recovered to pre-recession levels, meaning that more consumers have better credit and are better potential borrowers, credit unions have the chance to originate business and commercial loans to current and prospective members with sound underwriting practices. Pricing competition has also increased alongside the growing demand for commercial loans and a high number of qualified borrowers. This tendency demonstrates that the market would welcome additional lenders. Such demand has enabled nontraditional lenders to strengthen their market share through pricing strategies that produce lesser yields while buying market share. Deploying risk-based pricing that is focused on the risk and opportunity at an individual loan level, rather than a one-size-fits-all pricing strategy, can help ease this competition if more borrower education is deployed as well. As the market recovers nationwide, credit unions are faced with an opportunity and a challenge: entering into a growing market full of opportunity that is somewhat competitive in pricing. With this said, credit unions continue to be a sound alternative because it is in their nature to continue to lend responsibly.