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Rule changes could bolster credit-union commercial lending

by  | Corporate
Posted:     Updated: Oct 20, 2015  14:54 ET
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Borrowers might finance their cars and homes through credit unions, and maybe even get personal loans from those lenders, but the institutions aren't much help if you're looking for a commercial mortgage.

That has been the case since the time of the Great Depression, when the federal government began regulating credit-union lending practices. But the federal agency that oversees 21st century credit unions wants to change that, as do a group of lawmakers and the head of the U.S. Small Business Administration (SBA).


Current government-imposed limits on credit-union commercial activity are significant, and go beyond restrictions imposed on banks or other lenders.

1. The proportion of commercial loans of $50,000 or more is limited to 12.25 percent of a credit union's total assets, or 1.75 percent of the institution’s net worth, whichever is smaller.

2. The loan-to-value ratio on commercial loans cannot be more than 80 percent.

3. The commercial property being financed is, in itself, not sufficient equity for credit union loans. Borrower have to provide personal guarantees to receive financing.

4. Credit union loan officers who work in commercial lending must have at least two years of experience in the field.

5. Borrowers receiving construction or development loans from credit unions must have an equity position of at least 25 percent in the project being financed.

6. There are limits on the amount credit unions can lend to a single borrower.

This past June, the National Credit Union Administration (NCUA), the independent federal agency that regulates the industry, approved changes that would eliminate or revise most of the regulations related to commercial lending. The NCUA accepted public comment on the revisions through the summer and could still reverse course, but the new regulations are slated to take effect in 2017.

Congress, not the NCUA, however, is responsible for the cap on the proportion of a credit union's assets that could be invested in commercial projects, and a bipartisan bill introduced in the Senate in September would more than double the limit to 27.5 percent.

Also, SBA Administrator Maria Contreras-Sweet announced an initiative in February to expand small-balance SBA lending through credit unions. SBA-guaranteed loans issued by credit unions, which do not count against an institution’s federal commercial-lending cap, have increased by 50 percent from 2011 through 2014.

Borrowers and originators would welcome more robust credit-union lending, but regardless of what happens in Washington, the institutions are not on the verge of becoming major players in commercial mortgage activity. Even with the increase in SBA guarantees, credit unions accounted for less than 2 percent of the money loaned through the agency's flagship 7(a) program in 2014. The Credit Union National Association, the industry's trade group, estimates that lifting the commercial lending cap would add $14 billion in commercial funding annually, a healthy number, but miniscule compared to the $400 billion in commercial and multifamily mortgages originated by banks in 2014.

Still, the prospect of fewer controls on tax-exempt credit unions concerns bankers, who wrote more than 2,700 letters opposing the NCUA's proposals during the agency's comment period this year. The Independent Community Bankers of America (ICBA) described the deregulation proposals as, ”the tax-subsidized credit-union industry's campaign to extend its government-fueled competitive advantage over taxpaying community banks.”


Bill Lewis is editor of Scotsman Guide Commercial Edition. Reach him at (800) 297-6061 or

Topics: Commercial government loans | Commercial lending
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Rule changes could bolster credit-union commercial lending

by Scotsman Guide Media | Corporate
Posted: Sep 28, 2015  12:22 ET    Updated: Oct 20, 2015  14:54 ET

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