SAN DIEGO — It's been a little over a year since USA FederalCredit Union launched its business services division, but an evenearlier entry into loan participations set the foundation for anynavigating it would have to do to stay under the 12.25% memberbusiness lending cap.

For credit unions with high business lending activity that arepushing close to the regulatory threshold, options to stay incompliance are few with loan participations leading the pack. Atypical loan participation transaction that credit unions enterinto is where the originating credit union sells a 90%participation in its loans and retains the servicing rights as wellas a 10% interest in the loans. All the rights to the underlyingloans are consistent with the ownership percentages of 90% and 10%.However, the originating credit union may retain a smallsubordinated interest, generally 5%, in the pool of loans againstwhich losses are initially allocated and will provide reserves forthe expected losses, which is usually significantly less than thelimited subordination.

The $711 million USA FCU launched its business services programin September 2005, but began loan participations in February 2000,said Jennifer Ventimiglia, vice president of business services.Since then, it has done more than $68 million in loanparticipations and its new business loan portfolio has nearly $7million. On the deposit side, business accounts are just under $2million–a figure the credit union is strategically trying to growby bringing in larger deposits, Ventimiglia pointed out.

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