WASHINGTON — The financial health of credit unions and NCUSIF could be threatened by easing restrictions on member business loans, the American Bankers Association told the NCUA last week.
Proposed changes would "pose additional risk" because business loans are more likely to cause losses for credit unions.
ABA Senior Economist Keith Leggett said the recent failures of several credit unions were in part the result of losses stemming from the defaults of some of their business loans. And making it easier for credit unions to give out these loans would "increase risks in areas that neither credit unions nor the NCUA have been constituted to manage effectively," he wrote.
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Leggett cited NCUA data showing that delinquency rates on MBLs was 2.58% after the first quarter of 2008, a 60% increase from last year.
He added that business loans, and the losses they cause credit unions, "reduce resources available for credit unions to meet their primary mission to serve the financial needs of people of modest means."
The NCUA asked for input on whether to lower the borrower equity requirement on construction and development loans from 25% to 20% and whether there should be a regulatory credit limit on business credit cards. The agency wants input on whether they should clarify how a credit union is to establish the value of a property used to calculate the loan-to-value ratio.
Leggett predicted that raising the loan-to-value ratio would increase the potential size of losses from construction and land development loans made by credit unions.
For the full text of the ABA's letter to the NCUA, go to //www.ncua.gov/RegulationsOpinionsLaws/Comments/723/8-13-08-KeithLeggett-ABA.pdf
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