The credit union industry is known for its kinship. Few dare togo on record and point fingers at their credit union peers for poorloan performance.

But behind closed doors, there are a handful of credit unions inTexas, California and Nevada that are easily on the radar when itcomes to their business lending portfolio. In cases such as theconserved AEA Federal Credit Union in Yuma, Ariz., business loanred flags emerged well before its conservatorship took place inDecember 2010, industry watchers noticed.

Credit unions have long offered business loans, and some haveexpanded their portfolios through CRE loans. Industry data clearlyshows growth continues and is outpacing other lending categories.According to NCUA Chairman Debbie Matz, at the end of 2010, 2,210credit unions held 147,400 MBLs worth $37 billion. All of thesenumbers were up from 2006, when 1,954 credit unions held 111,000MBLs worth $23 billion.

MBL growth averaged 19% annually since 2006, outpacing overallloan growth of 4% annually over the same period. The average sizeof an MBL increased 18% to $249,000, from $205,400 in 2006. MBLloan losses increased to 0.7% from 0.1% in 2006, compared to 1.1%net charge-offs for all loans.

“These numbers tell a story of a vital and growing component ofmany credit unions' balance sheets–one which requires carefulsupervision,” Matz penned in a December 2010 Guest Opinionpublished in a Credit Union Times special report. “Whetheror not Congress chooses to raise the cap, NCUA has alreadyincreased scrutiny of MBL programs.”

Government agencies and regulators continue to pull out all thestops to stop the bleeding within the CRE sector.

The latest effort was announced Feb. 17 by the SBA, whichlaunched a new, temporary program that will allow small businessesfacing maturity of commercial mortgages or balloon payments beforeDec. 31, 2012, to refinance their mortgage debt with a 504loan.

The new refinancing loan is structured like SBA's traditional504, with borrowers committing at least 10% equity and working withthird-party lending institutions and SBA-approved certifieddevelopment companies in the standard 50%/40% split, according tothe agency. A key feature of the new program is that it does notrequire an expansion of the business in order to qualify.

Borrowers will be able to refinance up to 90% of the currentappraised property value or 100% of the outstanding mortgage,whichever is lower, plus eligible refinancing costs. Loan proceedsmay not be used for other business expenses. Existing 504 projectsand government-guaranteed loans are not eligible to berefinanced.

The SBA said it will begin accepting refinancing applications onFeb. 28. The program, authorized under the Small Business Jobs Act,will be in effect through Sept. 27, 2012.

Businesses with immediate need due to impending balloon paymentsbefore Dec. 31, 2012, will have first access. The SBA said it willrevisit the program later and may open it to businesses withballoon payments due after that date or those that can demonstratestrong need in other ways.

Meanwhile, steam continues to build on lifting the MBL cap. Asrecently as January, CUNA President/CEO Bill Cheney testifiedbefore the House Committee on Financial Services urging Congress tooffer relief.

“Today, many credit unions are rapidly approaching the cap whileothers choose not to engage in business lending because of thecap,” Cheney said. “While small business lending does not make upthe largest portion of credit union lending, it is the fastestgrowing segment by a significant margin.”

In 2010, the Obama administration gave its support tolegislation to increase the credit union business lending cap to27.5% of total assets and worked with the NCUA to shapelegislation, Cheney noted. If the bill became law, it was estimatedthat credit unions could lend an additional $10 billion to smallbusinesses in the first year after implementation, helping them tocreate over 100,000 new jobs.

In late February 2010, then Senate Banking Committee ChairmanChristopher Dodd (D-Conn.) called on the NCUA and other regulatorsto provide reports on how they are stabilizing the CRE market.

“I believe that the weakness in the CRE market requires promptand robust responses from the regulators to guard against harmfuleffects on financial institutions and the economy,” Dodd said. “Iurge you to redouble your efforts to provide appropriate oversightof this vital component of our economy and look forward to workingwith you to bring much-needed stability to the CRE market.”

Dodd cited a Congressional Research Service report that showedcommercial mortgage delinquencies had increased from 4% at the endof the third quarter of 2009 to 6% in January.

The NCUA continues to encourage credit unions to workconstructively with member-borrowers to implement prudent memberbusiness loan workouts that are in the best interest of both thecredit union and the member-borrower. Last summer, it publishedguidance to help commercial real estate borrowers experiencingdiminished operating cash flows, depreciated collateral values, orprolonged delays in selling or renting commercial properties.

Performing loans, which includes those that have been renewed orrestructured on reasonable modified terms made to credit worthyborrowers, would not be adversely classified solely because thevalue of underlying collateral has declined, the regulatornoted.

The NCUA went further, saying “prudent loan workout arrangementsshould improve the prospects for repayment of principal andinterest and should be supported by a comprehensive analysis of themember-borrower's willingness and ability to repay the loan, anevaluation of support provided by guarantors and a currentassessment of the underlying collateral.”