Written by Steve Van Beek
On Friday evening, NCUA issued Letter to Credit Unions 13-CU-02 and Supervisory Letter 13-01 on Member Business Loan Waivers. NAFCU has requested clarification and guidance in this area for the past couple of years. We'd heard from credit unions regarding the confusing MBL waiver process - including which areas could obtain waivers, the scope of the waivers and the fulfillment of requested waivers by NCUA. In other words, this guidance has been asked for by NAFCU and credit unions for a long time and should help credit unions understand and navigate the waiver process. And, just as importantly, the guidance explains the process to both credit unions and NCUA examiners to ensure everyone is on the same page.
Below is information from the Letter to Credit Unions and the Supervisory Letter. We'll get into additional details in future blog posts. The full Supervisory Letter sent to NCUA examiners is here.
The Letter to Credit Unions states:
"I am providing you with a copy of this Supervisory Letter so you can understand how NCUA approaches waivers of the various regulatory requirements for MBLs.
The Supervisory Letter incorporates feedback NCUA received during my Listening Sessions last year, as well as various requests for clarifications regarding when waivers are needed. In particular, the Supervisory Letter will help you better understand the following:
- What types of waivers are available under Part 723 of NCUA's Rules and Regulations.
- When and how you can obtain a "blanket " waiver applicable to a broader range of member business lending conducted by your credit union.
- Under what circumstance waivers are not needed for actions related to managing existing loans. In particular, the letter clarifies waivers are not needed for activities not meeting the generally accepted accounting principles (GAAP) definition of a "new loan."
- Which of the borrower's principals are required to provide a personal guarantee and the type of guarantee required based on different ownership structures for the business. The letter also clarifies what constitutes an associated borrower.
- The documentation you will need to submit and standards you will need to meet to request and qualify for a waiver.
- New NCUA procedures intended to streamline the process for obtaining waivers for credit unions buying a participation interest in an MBL.
If your credit union makes or plans to make MBLs, I encourage you to review the attached supervisory guidance. It will not only help you understand the MBL waiver process, it also contains guidance on sound risk management practices that will aid you in maintaining a safe and sound MBL portfolio."
The introduction of the Supervisory Letter also has a good summary:
"The risks associated with each business borrower are unique; therefore the rule allows for waivers of certain regulatory provisions in order to give credit unions the necessary flexibility to meet the needs of the members they serve.
In particular, the guidance:
- Defines the two general types of MBL waivers; an individual loan waiver and a blanket waiver.
- Establishes the specific financial attributes a credit union should exhibit along with the risk management processes a credit union needs to have to qualify for a waiver.
- Streamlines the procedure for processing a waiver request for participated loans.
- Addresses specific issues associated with waiver requests for LTV, personal guarantees and associated borrower.
- Adds clarity to determining the principals and associated borrowers in an MBL relationship.
- Reinforces expectations and best practices related to business lending."
If your credit union makes MBLs, be sure to review the full 15-page Enclosed Supervisory Letter.