While the new 100% cap in the revised loan participation ruledoes nothing to mitigate credit risk on a business loan, it doesaddress lead lender risk.

That's one of the opinions of Larry Middleman, president/CEO of CU Business Group LLC, aPortland, Ore.-based business lending and services CUSO that serves426 credit unions in 44 states.

“If a lead lender gets in trouble, whether it be financially orthrough a loss of key personnel or expertise, a participant mayhave more limited exposure to that situation than with no limit onpurchases from any one lead lender,” Middleman said.

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NCUA Approves New Loan Participation Rule

CU Attorney Sees Little Risk Mitigation in NewRule

On Thursday, the NCUA Board approved several changes to the loanparticipation rule. Among them, purchasing credit unions will besubject to a single-originator concentration limit of $5 million or100% of net worth, whichever is greater.

The risk retention requirement for originating federal creditunions will be 10%, as required by the Federal Credit Union Act,the NCUA Board said. The risk retention requirement for otheroriginating eligible organizations, including federally insured,state-chartered credit unions, will be 5% consistent with thestandard for securitizers under the Dodd-Frank Act unless state lawrequires a higher percentage.

Middleman said he is pleased to see the NCUA revise the maximumparticipation purchases from 25% of net worth from any oneoriginator to the greater of 100% of net worth or $5million.

“Ideally a participating credit union will develop a solid,trusting relationship with the lead lender over time,” Middlemanoffered. “The increased cap allows for a better payback on the costof doing proper lead lender due diligence, both at the time ofinitial purchase and throughout the life of the relationship.”

In addition, Middleman said the increased cap also allows aparticipant to gain efficiencies by buying from fewer lead lenders,which saves time and reduces cost.

“I also commend the new regulation for allowing credit unions topurchase participations in types of loans they do not originate asthat allows for better portfolio diversification,” Middlemanadded.