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In part three of her NAFCU Compliance Blog series on NCUA's member business lending proposal, NAFCU Director of Regulatory Affairs Alicia Nealon looks at what must be included in credit union board-approved commercial lending policies.

NCUA's MBL proposal would eliminate the rule's prescriptive underwriting standards and instead allow a credit union's board to establish commercial lending standards with general safety and soundness requirements in mind, Nealon writes.

The proposal eliminates existing requirements for loan-to-value ratios, minimum equity investments, portfolio concentration limits for types of loans, and personal guarantees. However, it requires that these risk management considerations be incorporated into the credit union's internal commercial loan policy.

The NCUA proposal spells out a number of new requirements for commercial loan policies such as establishing underwriting standards that include LTV ratio limits and methods for valuing all types of collateral authorized prior to extending any commercial loans or MBLs.

NCUA estimates that credit unions will spend 16 hours updating their commercial lending policies to comply with the proposal. NCUA also estimates that credit unions will spend 160 hours adopting a credit risk rating system if they do not already have one.

NAFCU is asking for member input on the expected compliance burden of these proposed changes. Learn more about the MBL proposal in Regulatory Alert 15-EA-16 (login required) or contacting Nealon directly; send an email to anealon@nafcu.org, or dial (703) 842-2266.