Loan participations have become important tools for creditunions to consider. When properly executed, loanparticipations tend to boost lending and increase “profits” duringlow loan demand.

According to some recent reports from NCUA, nearly 1,500federally insured credit unions have reported activity in loanparticipations with total balances of nearly $13 billion.

The NCUA requires that those credit unions involved in loanparticipations enter into a written master participationagreement.

However, the NCUA has not provided any guidance as to whatshould or should not be included in the master participationagreement.

The following are some suggested contract issues that should beconsidered as part of the due diligence analysis of a loanparticipation loan.

1. Identification of roles and responsibilities of all partiesinvolved

2. Verificationthat all parties have performed independent financial analysis

3. Requirementthat each loan participant has reviewed the loan documents prior toclosing

4. Identification of loans sold with and without recourse

5. Guarantors,if any, identified and appropriate due diligence

6. Attention toservicing issues

7. Buy-backrights

8. Noticeprovisions

9. Servicerrights, including fees, delinquencies, right to modifications

10. Privacy andconfidentiality issues

11. Broker's rights andresponsibilities/payments

12. Voting rights

13. Custody of loandocuments

14. Separate trust accountsfor funds

15. Statutory liens

16. Prepayment penalty

17. Defaults

E.Andrew Keeney is a Norfolk, Va.-based credit union attorneywith more than 35 years of experience.