NEWPORT BEACH, Calif. — The NCUA is “very much in favor of indirect lending,” according to Victoria Bennett, an agency Region V lending specialist.
However, Bennett was quick to clarify May 11 during a CU Direct Lending Conference session titled "Balancing Risk with Rewards of Indirect Lending" that “we’re just concerned that it’s a well-run program.”
Bennett cited a number of red flags to risk the agency would be scrutinizing, from the strategic to the transactional to credit.
Strategic red flags include lack of concentration limits or portfolio credit quality standards. Transactional risk red flags for the agency include inadequate segregation of duties and lack of internal controls. And, finally, credit risk red flags highlighted by the regulator comprised inadequate review of underwriting and high default rates, among other key factors.
Changes are taking place inside the NCUA that credit unions should be aware of, Bennett explained. Since the NCUA is moving away from risk-based examinations, credit unions should be ready for questions they have not heard before, including from the indirect lending questionnaire.
Bennett acknowledged a slight dip in the growth of indirect lending in the last quarter of 2010 but mostly it has been humming along. She also noted a drop in delinquencies and charge-offs related to indirect lending. “How much is that influenced by modifications and [troubled debt restructuring]?” she pondered.
Bennett, a former national bank examiner, said that she has always loved credit unions. “They always fight for their members,” she said. Sometimes that can be to the detriment of the credit union, though, she added.