CHICAGO – Nearly eight months out, a new secondary market MBL fund is roughly halfway to its $25 million share sale goal. Launched in March, CU System Fund was created by CUNA Mutual Group to allow for the purchase of business loans from credit unions and the sale of shares in them to other interested credit unions. So far, credit unions have invested $12 million in the fund with another $3-$5 million in the pipeline, said Jennifer Novinska, CU System Fund operation manager. Middletown, Pa.-based CU BizSource, LLC has been assisting with the certification process needed for credit unions to participate in the fund. When the fund reaches $25 million, sales of shares will begin. “What we’re finding is many credit unions didn’t know a secondary market was available,” Novinska said. “One of the major concerns for these credit unions and CUSOs is liquidity, which is something that the secondary market can provide. Once they get certified, they have an open door to the fund.” Novinska attended NACUSO’s recent Business Services Collaborative here and said credit unions want to learn more about the secondary market for MBLs. The certification process is an “altruistic” piece because it offers protection, said David Dunn, CU BizSource senior vice president, corporate development/operations. “Certification is meant to mitigate risks and damages,” Dunn said. “We don’t want to recreate what the savings & loans did.” The CU System Fund allows a credit union to invest in shares of a series of funds holding a portfolio of credit union-originated MBL participations and other “permissible” investments for liquidity purposes. Loans from a single credit union originator can not exceed 10% of fund assets and will require sellers to retain at least that same percentage interest in the loan. Shares in the investment funds will then be offered to credit unions and affiliated entities. CUNA Mutual will serve as the sponsor and will also maintain an equity position in the funds. Investors are limited to 10% of their net worth in any one fund and an aggregate limit of 50% of their net worth in all funds. Dunn said following his presentation at NACUSO’s Collaborative, representatives from 15 credit unions exchanged business cards with him, many who weren’t aware that a secondary market existed. CU BizSource currently has partnerships with 28 credit unions. The firm recently re-designed its Web site to include more extensive information on the certification program and the Member Business Loan Underwriting and Documentation Standards that were formulated with the input of credit unions from across the country. CU BizSource, which was originally formed by the Pennsylvania Credit Union Association and acquired by CUNA Mutual Group’s MEMBERS Development Co. LLC in July 2004, is among those players helping the industry to facilitate those secondary market loans. The firm also offers underwriting consultation, document preparation, loan servicing and other areas that support member business services. -

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