California, Nevada CU Leagues Encourage NCUA to Adopt Proposed MBL Changes

RANCHO CUCAMONGA, Calif. – Proposed changes to NCUA’s member business lending rule could open more doors for credit unions, the California and Nevada CU Leagues recently said. Among the changes, NCUA has proposed amending the rule to allow CUs to participate in other government guaranteed loan programs and changing the definition of construction or development loan to include loans for renovating or developing property owned by a borrower to produce income. League CEO Dave Chatfield said the current MBL rule on construction or development loans, which limits financing arrangements to purchase transactions, is “unduly restrictive and unfairly penalizes borrowers who already own or have rights to a property.” “Essentially, because the nature and purpose of the loan is the same -construction and development of income-producing property – it is only reasonable to allow existing property owners equal access to member business loans,” Chatfield wrote in a comment letter to NCUA. “The proposed changes bring both clarity and flexibility to the treatment of construction and development loans.” The Leagues also praised the proposed rule change regarding guaranteed loan programs, saying that “equal access to all government guaranteed loan programs is absolutely critical to support credit unions in their mission to satisfy their members’ business loan needs.” Chatfield said allowing credit unions to make SBA guaranteed loans under SBA’s lending requirements instead of the more restrictive MBL rule – which NCUA has permitted credit unions to do since October 2004 – “has been a move in the right direction,” but termed the current rule is “still unjustifiably restrictive.” “Complete expansion will facilitate increased knowledge among credit unions of existing loan programs that can be properly matched to the unique circumstances and needs of their members,” he wrote. “Without expansion, many credit unions will remain unaware of the breadth of government guaranteed loans that currently exist. Many of these programs target underserved or disadvantaged segments of the business population and allow small businesses to secure loans that would normally be declined by local banks.” NCUA has proposed revising the phrase “net worth” used in the MBL rule to be consistent with the definition found in the FCU Act and in NCUA’s prompt corrective action regulation. The Leagues also said that, consistent with the MBL cap calculation, the guaranteed portion of any government guaranteed loan should be excluded from prompt corrective action calculations. Within the MBL rule, NCUA has also sought feedback on clarifying what would be the minimum capital requirements a federally-insured corporate CU must meet in order to make unsecured MBLs to non-member CUs and corporate CUSOs. [email protected]