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WASHINGTON – In light of a recent legal opinion on member business loans, CUNA is urging NCUA to roll those clarifications into a proposed rule that would offer “less restrictive” requirements for credit unions involved with SBA’s 504 and 7(a) loan programs. The NCUA opinion states that loan maturity limits, usury ceiling and prepayment penalties are terms of SBA’s lending programs, and federal credit unions may rely on SBA’s rules in these areas and not NCUA’s, said Mary Dunn, CUNA senior vice president and associate general counsel. As a result, federal credit unions may provide more small businesses with working capital, furniture, machinery, land and buildings, and leasehold improvements, she added. Under the NCUA’s proposal, the MBL rule’s collateral and security requirements would not apply to MBLs made as part of a SBA guaranteed loan program. The MBL rule’s provisions on construction and development lending includes the requirements that the borrower must have a minimum of 25% equity interest in the project being financed and that the net MBL balances for all construction and development loans must not exceed 15% of net worth; generally, the maximum loan-to-value ratio for all liens must not exceed 80%. The proposed exemption would allow federally insured credit unions to make construction and development loans under the safety and soundness standards established by SBA, Dunn said. “(We) urged this action in a previous comment letter and welcome this regulatory change,” Dunn said. “We applaud NCUA for developing this proposal, in cooperation with the Small Business Administration. This type of action is illustrative of public policy at its best.” CUNA is also encouraging NCUA to make it clear that the new authority applies to SBA’s 504 and 7(a) loan programs and that dialogue continue with SBA “to ensure that, as new programs are developed or current ones enhanced, credit unions will not face unnecessary limitations that preclude or restrict their participation.” The proposed rule complements NCUA’s recent legal opinion on MBLs that states that loan maturity limits, usury ceiling and prepayment penalties are terms of SBA’s lending programs for which federal credit unions may rely on SBA’s rules, instead of on NCUA’s MBL requirements, Dunn said. The opinion letter allows federal credit unions to provide more small businesses with working capital, furniture, machinery, land and buildings, and leasehold improvements, she pointed out. “We agree with the analysis of the legal opinion, but not with its scope,” Dunn said. “The supplementary language accompanying the proposal states that while NCUA’s proposed rule change would apply to federally insured credit unions that are covered by NCUA’s MBL regulation, the legal opinion only applies to federal credit unions.” Since NCUA’s MBL rule applies to federal and state credit unions that are federally insured, CUNA has urged NCUA to apply the legal opinion to all federally insured credit unions by incorporating it into the regulation and such inclusion “is fully consistent” with Section 1757a of the Federal Credit Union Act, which governs member business lending for all federally insured credit unions. Dunn said CUNA will soon file another letter as part of its response to NCUA’s regulatory review, which will include additional comments on general issues relating to member business lending. In February 2003, SBA began partnering with credit unions and since then more than 150 are currently offering SBA loans. At a March 2004 PALS workshop co-hosted by NCUA Board Members JoAnn Johnson and Debbie Matz, discussions centered on the differences between NCUA and SBA regulations that made it difficult, if not impossible, for credit unions to make certain types of SBA loans. The following month, directors of NCUA’s five regional offices were encouraged to consider waivers for credit unions to make SBA 504 loans, which are guaranteed by community-based non-profit organizations. Waivers from loan-to-value limits will allow credit unions to:fully fund 504 loans; reduce loan turnaround time; and better serve small business owners who need to buy real estate, machinery or equipment to expand or modernize their businesses, NCUA said. In May, NCUA issued a legal opinion letter with new interpretations to make several MBL terms consistent with SBA’s 7(a) program – SBA’s primary program to guarantee loans for a wide range of business needs. Credit unions would be allowed to provide more small businesses with working capital, furniture and fixtures, machinery and equipment, land and buildings, and leasehold improvements; extend MBLs beyond 12 years for small business owners investing in fixed assets; and prepare to sell SBA loans to the secondary market. [email protected]


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