America's Community Bankers says NCUA MBL Proposal an "Affront" to Credit Union Membership Access Act

WASHINGTON – America’s Community Bankers has voiced its opposition to an NCUA proposal that aims to make SBA guaranteed loans under the SBA’s “less restrictive” lending requirements instead of under the NCUA’s lending requirements. In an Aug. 25 letter to NCUA Secretary Becky Becker, Charlotte Bahin, ACB’s senior vice president, regulatory affairs, wrote the proposed changes are “an affront to the intent of the Credit Union Membership Access Act (CUMAA). Congress specifically limited the extent to which credit unions may engage in business lending.” The NCUA’s collateral and security requirements for business loans are generally more restrictive than those of the SBA’s guaranteed loan programs. The SBA does not apply specific loan-to-value criteria in deciding whether to approve or decline a loan or loan guaranty request. Instead, the SBA uses collateral value on a case-by-case basis. In addition, the SBA generally requires holders of a 20% ownership interest to guarantee a loan. Under the NCUA’s MBL regulations, the loan-to-value ratio of a business loan cannot exceed 80% unless the remainder is covered by private mortgage insurance or an equivalent type of insurance or is insured or guaranteed by a federal agency. In no case can the ratio exceed 95%. For construction and development loans, the borrower must have a 25% equity interest in the project being financed. The NCUA’s business lending regulations also require principals to provide their personal liability and guarantee. However, recent amendments to the NCUA’s member business lending rule permit Reg Flex credit unions to make their own decisions regarding personal guarantees, Bahin wrote. The ACB says “despite the deference already granted to well-capitalized credit unions regarding personal guarantees, the NCUA is proposing to further amend its (MBL) regulations in response to complaints from the credit union industry that the NCUA’s more stringent collateral and security requirements prevent credit unions from making certain loans that it could otherwise make under the SBA’s requirements.” In 1998, Congress limited a credit union’s outstanding member business loans to the lesser of 1.75 times the credit union’s net worth or 12.25% of its total assets. The Senate Committee on Banking, Housing, and Urban Affairs imposed these restrictions to “ensure that credit unions continue to fulfill their specified mission of meeting the credit and savings needs of consumers, especially persons of modest means, through an emphasis on consumer rather than business loans,” the ACB noted. “Over the years, the NCUA has disregarded this statutory mandate. NCUA regulations provide that commercial loans that are fully guaranteed by a federal agency are excluded from the definition of a member business loan,” Bahin said. Loans that are exempt from this definition are not counted toward the aggregate loan limit. Moreover, the NCUA amended its business lending regulations in 2003 to exclude purchased participation loans from the loan limit calculation. ACB reminded NCUA that in 1952 Congress revoked the tax exemption of mutual savings banks and other cooperatively organized depository financial institutions “because they were deemed to be in active competition with commercial banks.” “The NCUA’s proposed change to the member business lending rule continues down the path of making credit unions substantially similar to tax paying commercial banks and mutual savings banks,” Bahin wrote. “(The) distinction between community banks and credit unions will be further blurred until the rationale for exempting credit unions from federal taxation will cease to exist.” [email protected]