Managing Cap on Member Business Lending Most Common Complaint, NCUA MBL Program Officer Hears

Credit Union Times: You have an extensive background in commercial lending and you've seen things from several different, high profile angles–what do you hope to bring to the new role?

Ross: One of the most important lessons I have learned over time is there is seldom just one way to do it right. I hope to use my skill to help credit unions develop their member business lending programs as well as assist in training examiners to review these programs.

Credit Union Times: You recently spoke at Member Business Lending, LLC's Leadership Summit. What did you hope attendees would take away from your talk?

Ross: My host asked me to address three issues:

-The objectives of the MBL program officer position;

-My plans to use the collaborative/cooperative nature of credit unions to further those objectives;

-Common MBL examination issues

I hope that my comments on these topics explained my role, encouraged credit unions to share best practices with one another, and identified some areas of increased risk that some managers may not have considered before.

Credit Union Times: As you travel and perhaps receive inquires from credit unions across the country, what are you hearing from them?

Ross: Managing to the regulatory cap is certainly the most common challenge I hear about. Most credit unions are selling participations to stay within the cap, but loan participations can present their own challenges. The lead lender and participants sometimes have different expectations about their respective roles. The sellers are concerned that the participants may be relying on the lead lender's underwriting and not conducting their own analysis. Some participants are concerned that they are not fully informed about the on-going status of the loans.

Credit Union Times: Some of your responsibilities will include developing "effective" member business lending training programs and serve as an instructor–what are some areas that you feel need the most pressing attention right now?

Ross: Credit unions should be cash flow lenders, not collateral-based lenders. So, cash flow analysis is a top priority. With credit unions' heavy concentration in real estate lending, we are seeing a significant increase in borrowing entities formed as limited liability companies, limited partnerships, and sub-chapter S Corporations. It is crucial that underwriters, loan committees and examiners understand the unique cash flow characteristics of those entities. Loan participation issues are another top priority.

Credit Union Times: For some credit unions, the 12.25% member business lending requires some navigation to stay under that threshold. The Credit Union Regulatory Improvements Act aims to raise the cap to 20%. Do you feel that this is enough of an increase to give credit unions more breathing room? Why or why not?

Ross: The decision rests with Congress and the NCUA Board. I do believe that if credit unions control their loan growth and build their asset base in concert with their loan growth, it is easier to operate within the existing cap.

Credit Union Times: You will be working closely with the regional offices, which may include you participating in the examination or supervision of a credit union at a regional office's request. In general, what will be you be looking at when it comes to a credit union's member business lending program?

Ross: Overall risk management is the key. Policies, procedures, and experienced credit union staff are the foundation of a safe and sound member business lending program. After an initial review of these basics, then I review individual loans to evaluate that loans are granted in accordance with the policies, and that risks are identified, mitigated, and controlled, and the board is kept informed about existing and emerging portfolio risks.

Credit Union Times: You've worked on both the banking and credit union side–what can you say about the strides that credit unions have made in business lending compared to their banking counterparts?

Ross: Credit unions have demonstrated their strong interest in making member business loans. The mission of serving members has translated well from the consumer side to the member business lending side. Most credit union member business lending portfolios are concentrated in real estate loans. As the economy changes and real estate projects evidence more risk, we may need to remind credit unions that sometimes the most meaningful demonstration of member service is to primarily focus on local members.

–msamaad@cutimes.com