CUs Given Stay Of Execution On Loan Participation Regulations

July 5, 2013 at 8:13 am Leave a comment

If you are one of the unfortunate few who don’t have today off, or you’re reading this for the first time on Monday morning trying to put off getting back to your real work as long as possible, I have some good news for you.  In case you missed it, NCUA delayed the effective date of its new loan participation concentration limit regulation from July 25 to September 21, 2013.

Even though the regulation grandfathers in existing participations, judging by the calls we’ve gotten in our compliance department, the new concentration limits have made at least some of our credit unions uneasy.  NCUA deserves credit for putting off the stay of execution so at least those credit unions most affected can get their affairs in order.

Remember that once the regulations take effect, the aggregate amount of loan participations that may be purchased from any one originating lender may not exceed the greater of $5 million or 100% of the credit union’s net worth absent a waiver from NCUA and your state regulator for state-chartered institutions.  The regulation also establishes a limit on the aggregate amount of loan participations that may be purchased from any one borrower at 15% of a credit union’s net worth.

I know this regulation has concerned credit unions, particularly those with maxed out loan to share ratios.  But I have to be honest, there is a need for greater oversight in this area.  Maybe the caps will be too restrictive; we will have to wait and see.  But let’s keep in mind that loan participations are not straight forward investments.  With or without this regulation credit unions are already prohibited from acquiring portions of loans that they are not qualified to underwrite on their own.  To the extent that credit unions in search of higher yields are buying portions of loans with risks they don’t fully appreciate, this is precisely the type of thing that any regulator is justified in trying to deter.

Entry filed under: Compliance, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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