New SBA 504 First-Mortgage Pools Can Aid CUs and Member Businesses
While banks are the first approved lenders for a new SBA secondary market loan pool, credit unions are eligible to participate in the program that provides another liquidity source.
Bank of America and United Midwest Savings Bank were the first financial institutions to assemble SBA 504 first-mortgage pools to be sold in the secondary market, the SBA said last week. Bank of America pooled $32.07 million in loans it purchased from other lenders, with $25.65 million guaranteed by the SBA, according to the agency. United Midwest assembled a pool of $7.96 million, with $6.4 million guaranteed by the SBA.
Typically, a 504 project includes three elements: a loan or first mortgage secured with a senior lien from a private-sector lender covering up to 50% of the project cost, a second mortgage secured with a junior lien from a CDC backed by a 100% SBA-guaranteed debenture covering up to 40% of the cost and a contribution of at least 10% equity from the small business borrower. Brokers, or pool originators, purchase portions of the first mortgages, package and sell them on the secondary market. So far, 12 banks have been approved to participate in the pool.
According to James Hammersley, program manager for the 504 First Mortgage Loan Pooling program, the NCUA is an acceptable regulator to the agency for pool originators and credit unions are eligible if they meet all of the appropriate criteria. Among the requirements for banks and credit unions are the financial capability to originate acceptable pools consisting of eligible first-lien position 504 loans in sufficient quantity to support the issuance of pool certificates and satisfactory SBA performance as determined by the agency.