CU BizSource David Dunn Shares Insight on Pressing MBL Concerns, Mistakes Credit Unions Make

MIDDLETOWN, Pa. – Member business loans grew more than three times as much as the overall loan portfolio in 2004 and the pace doesn’t appear to be letting up. CU BizSource, which was originally formed by the Pennsylvania Credit Union Association and acquired by CUNA Mutual Group’s MEMBERS Development Co. LLC in July 2004, is among those players helping the industry to facilitate those loans. The firm uses the secondary market for credit union member business loans and has since expanded into underwriting consultation, document preparation, loan servicing and other areas that support member business services. It currently serves 25 credit union clients nationwide and recently hired Philip McGoohan as its president/CEO. In March, NCUA gave approval to CUNA Mutual to launch the CU Systems Fund, an investment fund that will allow for the purchase of business loans from credit unions and the sale of shares in them to other interested credit unions. Credit Union Times recently talked with David Dunn, CU BizSource director of operations, on some of the hot button issues in member business lending. Dunn created CU BizSource in 2001 and has worked in commercial banking in several capacities including in commercial lending and branch management. CU Times: What do you see as the most pressing issues for credit unions and member business lending? Dunn: The white elephant standing in the middle of the room would have to be the 12.25% cap. Once a credit union has made the commitment (to offer MBLs), the cap will become an issue in short order. It’s just a question of when. That is an enormous concern regardless of the asset size of the credit union. There might also be a global issue – credit unions need to be able to develop their own talent. Years ago, there was a preponderance of training programs available to bank (staff). They really had the opportunity to learn commercial lending. But as banks have merged, they’ve done away with these programs. When these (lending experts) retire, there could be a good shortage of people to choose from. This may be a problem for credit unions seeing as that many of them hire former bankers. The time may be coming when you can’t cherry-pick a banker, so how are we going to address this shortage? It may mean creating some type of university (to train credit union personnel). I should acknowledge that community bankers should also be concerned. This concern is not unique to credit unions but to the entire financial services industry. CU Times: What is the biggest mistake that credit unions make when it comes to deciding to offer MBLs? Dunn: From my experience, it’s related to the first (question). They recognize they need to get the right people on board but some of them are not hitting the mark. Commercial lending in the banking world doesn’t fall on one person. There are underwriters and business development people. Credit unions, in their recognition that they need to get the right people, occasionally bring in the wrong sort of folks. Recognizing that, they find out that they have to get those folks help. One person does not a make a department. In finding the right persons, it can delay their entry into the market. CU Times: The Credit Union Regulatory Improvements Act (CURIA) stands to raise the MBL cap from 12.25% of assets to 20% and increase the MBL limit to $100,000 from $50,000. What would these increases really mean for credit unions going forward? Dunn: It’s a function of perspective. There are a number of credit unions that are prolific originators meaning they underwrite a lot of loans and the cap becomes insufficient. Other large credit unions that made the investment in personnel and so forth, run up against the cap but because they’re prolific originators, the (loan) demand is outstripping their means to make the loans. For a lot of credit unions that are just getting started over the next 12 to 18 months, it’s going to take some time before the cap becomes an issue. CU Times: A recent editorial that ran in both the Sacramento Business Journal and the Philadelphia Business Journal blasts credit unions’ entry into member business lending, saying, in essence, they don’t have the know-how to handle the risks that come along with offering such loans-what’s your take? Dunn: Was it written by a banker? I haven’t seen the editorial but it’s important to recognize that there are are a number of community bankers that are working in the credit union industry. In addition to these folks, there a number of CUSOs that have the skills (to facilitate MBLs. There’s nothing proprietary about the skills (bankers) bring. They bring their experience to credit unions and (credit unions) can apply lessons learned (to their unique experience). That’s what’s happening now. I talk to credit unions every day and they’re smart enough to know (the business lending process). [email protected]