Credit union attorneys were being warned Thursday to prepare their clients for much tougher scrutiny from examiners on loan portfolios, performance ratios and much more given the negative economic climate.
The admonition that examiners "are becoming much more focused on concentration risks and real estate" comes from Washington attorney and CU consultant David Reed, who suggested even well-capitalized CUs will need to be wary of what he called "outside entanglements" involving high risk loans.
"That 27% drop in July home sales reported this week clearly puts the emphasis on the real estate portfolio and so attorneys, as consigliore's, need to ensure their CEOs are ready for what lies ahead since it could be more bad news," suggested Reed, a partner in Reed & Jolly, a Fairfax, Va. firm.
The D.C. attorney is a lead speaker at the annual Credit Union Attorneys' Conference of the Pennsylvania Credit Union Association slated Sept. 23-24 in Harrisburg. An announcement of the conference noted the topics will include enforcement trends considering attendees at an earlier volunteer conference had expressed "grave concern about exams and conditions being imposed" on CUs by regulators.
Reed forecastes that based on his research examiners will be looking more closely at what percentage of loans CUs keep on their own books and which are shared or spun off. They will also be scrutinizing equity lines, the amount of troubled debt, collections and business lending in addition to other areas, he said.
Regulators, he said, appear to be "buckling down harder" in the exam process and with less patience than months ago."The continuing aftershock from the corporate assessment and real estate" will weigh heavily in exams, he predicted.