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ARLINGTON, Va. – NASCUS is planning by the end of January to turn over to NCUA Board Member Joanne Johnson a list of proposals on how the federal member business lending rule can be changed to provide all federally insured credit unions the same relief provided state-chartered credit unions operating in those states whose state-specific MBL rules have been approved by NCUA. The recommendations are in response to a request from Johnson, who is also NCUA’s liason to NASCUS. In December, the NCUA Board member met with NASCUS to initiate discussions on revising the federal MBL rules. “There seems to be some agreement that since NCUA has approved state specific member business lending rules for federally-insured state-chartered credit unions, the rules should be changed for all federally-insured credit unions,” said Mary Martha Fortney, NASCUS’ vice president, state government affairs. Since November 1999, NCUA has approved state-specific MBL rules for seven states – Texas, Missouri, Washington, Maryland, Wisconsin, Connecticut and Oregon. As part of its effort to garner input from state credit union regulators and state credit union CEOs about areas of the federal MBL rule they consider should be amended, NASCUS brought representatives from the two groups together in a conference call, first on Dec. 23, 2002 and again on Jan. 6. From those two conference calls, NASCUS compiled a list of four areas in the federal MBL rule it considers most important for NCUA to consider revising: * Personal guaranty requirements: Section 723.7B of the federal MBL rule, concerning collateral and security requirements, includes collateral details for business loans – unless the NCUA regional director grants a waiver, all LTV ratios can’t exceed 80% unless covered through insurance, and in no case can they exceed 95%. In contrast, none of the state-specific MBL rules have personal guarantee requirements. “The seven states have made member business loans without personal guarantees, and these loans have posed no threat to the NCUSIF,” said NASCUS Director of Legal and Policy Analysis Brian Knight. “It should be the same for all federally insured credit unions.” * Broader exemptions from collateral requirements: Washington, Wisconsin, Oregon and Connecticut’s MBL rules offer additional exemptions in addition to the NCUA’s exemptions in Section 723.7. * Equity interest for construction loans: Section 723.3 of the federal rule requires the borrower to have 35% equity interest in the project. Washington and Wisconsin’s state-specific MBL rules break these loans in to two groups – constructions and development – and decrease the waivers to 30% and 35%, respectively. Texas, Maryland, Connecticut and Missouri’s MBL rules mirror NCUA’s in this section. Oregon’s rule requires a 35% equity interest for development loans and 25% for construction loans. “There is agreement among state regulators and members of the NASCUS Council that the federal rule’s 35% figure is a random number, and NCUA should reconsider it,” said Knight. He added that the NCUA’s 35% equity figure is higher than the general industry trend. * Waiver authority in construction MBLs: Under Section 723.3, federal credit unions have to obtain waivers from their NCUA regional director. Washington, Wisconson, Maryland and Oregon have waiver authority in their rules; in Texas, Connecticut and Missouri the waiver authority remains with NCUA. Even when NCUA revises the federal MBL rules, Knight said it will still be necessary for states to have their own rules. “Any revision doesn’t obviate the need for creativity and fresh approaches to the regulation. NCUA should still allow the states to promulgate their own rules with NCUA’s approval. There is a sense at NASCUS and among state regulators and members of the NASCUS Council that regulatory relations between the regulator and the regulated are constantly evolving and regulations should evolve also,” said Knight. He emphasized that in NASCUS’ discussions with Johnson, the NCUA Board member “made it clear that NCUA will not preempt state authority.” -

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