The impact that credit union real estate loan portfolios have onnet worth has increased and drawn the attention of examiners,consultant Tracy Ashfield told her CUNA Mutual Group Online DiscoveryConference audience Tuesday.

The Ashfield and Associates principal presented a session thataimed to help credit unions prepare for real estate examinations byregulators.

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Despite credit unions selling approximately 50% of all firstmortgages to the secondary market, Ashfield said the ratio of realestate loans to net worth has risen to more than 200% this year.And, real estate loans have increased from 39% of total loans to55% in the past 10 years.

While credit unions may look at real estate loan numbers andfeel pride in how the industry has captured more market share,Ashfield said, regulators see increased risk instead.

Ashfield shared a graph she said was given to her from acolleague at the NCUA that shows credit unions have considerablymore concentration risk in real estate than their peer bankcompetitors.

“This is not a matter of credit unions or regulators beingwrong, but just recognize they are looking at it differently,”Ashfield said.

Examiners used to focus on loss mitigation, but new trends havethem taking a closer look at credit risk, interest rate risk andconcentration risk, she said. As such, credit unions should beprepared to answer questions about strategies to deal with risinginterest rates and matching low-interest loans against a highercost of funds.

Credit unions should also maintain solid risk managementpolicies, board policies, concentration risk limits and third-partyoversight. And, adequate internal controls that support accuratereporting and ensure appropriate segregations of duties for checksand balances are important to examiners, too, she said.

Ashfield stressed that credit unions have made great strides inreal estate lending, and a proactive approach to examinations is away to prevent jeopardizing that progress.

Credit unions must show that they are doing more than justmaking real estate loans, she said. They must also show that theycan effectively manage those assets on their balance sheets.