Backlash Builds on NCUA Waivers
There is a growing industry backlash against the criteria for member business loan waivers.
If a recent session on MBL program updates held during NACUSO’s annual conference in Las Vegas is any indication, the application process is generating ripples of frustration.
According to the NCUA, credit unions have the right to request waivers from certain parts of the agency’s rules and regulations. The waivers fall into two categories: an individual transaction waiver for an individual or specific list of loans and a blanket waiver of a specific regulatory requirement.
Before applying for a waiver, a credit union should have seven qualifications in place, including having a MBL program for at least five years and a composite CAMEL code rating and management and asset quality component ratings of 1 or 2 for the last two consecutive exams.
“The criteria for the MBL waivers are frighteningly vague,” said one attendee at the session.
At least two others told Vieten they’ve experienced inconsistencies with NCUA regional directors in different regions on some of the waiver’s criteria.
“The problem is some regional directors know how to deal with auto and consumer loans, but they’ve never heard of MBLs,” said one attendee from a credit union that deals with the niche lending product of taxi medallions.
Vieten said, “We’re addressing inconsistencies between the regions.”
“We’re so focused on the rule–and we should be. But if you have an LTV issue, you have a risk issue. Address the risk issue,” Vieten said. “When there’s a need for a waiver, should that be a cause for alarm? Hopefully, any concerns are addressed before applying for a waiver.”
Brian Lauer, a partner with Messick & Lauer PC in Media, Pa., said the law firm is hearing from many credit unions who’ve said NCUA regional specialists are saying don’t even bother applying for the waivers because of the personal guarantee provision.
In an April 23 interview with Credit Union Times, Lauer said loan participations are the biggest concern.
“We’ve been pushing for our clients to allow the purchasing credit unions to buy without having to get a waiver. The interpretation that the NCUA has taken is if the waiver is associated with a loan, like with a personal guarantee, the credit union is not able to buy because they don’t get the waiver,” Lauer said.
There are also some on issues on the loan to value requirement, particularly with collateral depreciation, Lauer noted.
“After the economic crisis, the ways of appraising properties have changed. Appraisers are really being conservative. They don’t want to put their neck out there, especially on a loan that’s already on the books.”
Meanwhile, back at the NACUSO MBL session, after other attendees expressed additional concerns with the waiver process, including more stories of inconsistencies within the NCUA’s five regions, Bill Beardsley, president/CEO of commercial lending CUSO Michigan Business Connection, probably asked the most poignant question.
“Does this all mean the NCUA doesn’t want us to do waivers?” he wondered.
Vieten said the seven waiver qualifications, which include being well-capitalized and having a positive trend in earnings, are things credit unions should be doing anyway.
The most common waiver requests deal with loan-to-value, personal guarantee and associated borrower issues, Vieten noted.
The words “personal guarantee” prompted several groans from attendees in the room. Vieten acknowledged that he’s hearing that credit unions are missing out on lending opportunities here.
The NCUA has said a personal guarantee by the principal offers additional financial support to back the loan but, more importantly, solidifies the long-term commitment by the principal to the success of the borrower.
NCUA regulation Part 723.7(2)(b) requires “Principals, other than a not-for-profit organization as defined by the Internal Revenue Service Code (26 U.S.C.501) or those where the regional director grants a waiver, must provide their personal liability and guarantee.”
“I think we’ve gotten a lot of loans paid back because of the personal guarantees,” Vieten said, while aware that the five-year relationship with the borrower requirement may get in the way and the NCUA may need to address this aspect.
Still, one attendee said he’s feeling the sting of the personal guarantee requirement. When asked by how much? He said $60 million in one day.
At the conclusion of the session, Vieten said he always looks forward to getting out in the field and getting feedback from credit unions because he’s able to find out what’s working and what’s not.
“The message I want to get across is things are going to change. Are they going to change tomorrow–no,” he explained. “Do what’s right for the borrower. Don’t lend them money that they’re not going to pay back. Build a relationship with the borrower. Be the authority.”