DALLAS – One good sign of lending picking up is loan participation deals. If they start proliferating, things are a changing. Southwest Corporate FCU, Dallas, recently completed its first-ever loan participation deals. They involved two very large multi-billion dollar credit unions, with the participated loans totaling over $30 million. The loans were new and used autos. Three or four years ago loan participation programs were supposed to take off as credit unions encountered strong loan demand, but things changed dramatically as loans became scarce and the liquidity floodgates opened. Bruce Fox, SVP for Asset Liability Management for Southwest said some credit unions are seeing increased lending activity, especially those that have committed to indirect lending. "Some larger credit unions are pretty heavy in indirect lending, having real success with these programs," said Fox. According to Fox, Southwest has more deals in the pipeline that could happen soon. "The advantage of us as a large corporate is we can participate out 50 to 60 loans at any time, versus a credit union having to find 10 to 15 credit unions to absorb that quantity," said Fox. Credit unions are allowed to participate up to 90% of their portfolios, so the potential liquidity that loan participation can free up is huge. The idea is to use that liquidity to make more loans. In the Southwest deals, the loans were participated at full-recourse, so Southwest is taking little risk. With full-recourse, if loans go delinquent for a certain period of time they go back to the credit union. Under these deals the credit unions retains the servicing, so members see no changes in their lending relationship with the credit union. Interestingly, Southwest does all the same due diligence with participation deals as it would with other instruments it invests in – meaning Southwest did due diligence on the credit unions, both of which were Southwest members. "We did a visit. We sent out a team to look at their underwriting practices, internal activities and collections. We find loans that we want to sample and maker sure the details are being taken care of. Most credit unions really believe in their underwriting practices," said Fox. If Southwest determined the underwriting practices were suspect, it could kill a participation deal. In the first two deals, Southwest spent about a half day at each CU and was very pleased with what it found. Fox said participation deals don't take as long to put together as some credit unions might think. The most recent deal was done in less than three weeks. Southwest has decided to keep the participated loans on its balance sheet right now as an asset, but down the line it may reparticipate them out to other credit unions. "That's something positive for credit unions that may not be as successful in generating loans," said Fox. Back in 2000, NCUA cleared the way for Southwest to be the first corporate to offer a loan participation program. [email protected]