The MBL final rule, which significantly amends regulation 723, and will allow credit unions greater flexibility in business lending, was published in the Federal Register on Monday, March 14th.

In accordance with the change on personal guarantee requirements that will take effect on May 13, 2016, CUBG will issue a revision to the personal guarantee section of our MBL policy template and distribute to our Member credit unions in May. We will also issue a fully-revised version of our policy template in 4th quarter, to reflect the changes that will take effect January 1, 2017, and additional supervisory guidance that is expected to be released in September.

CUBG has carefully reviewed the revisions and provided a summary of the changes below.

The new MBL Regulation 723:

  • Removes prescriptive limits on business lending and eliminates the need for NCUA waivers
  • Requires each credit union to clearly lay out its credit risk tolerances and parameters in the business loan policy
  • Removes the personal guarantee requirement but requires articulation of offsetting credit strengths that justify the lack of guarantee. Takes effect May 13, 2016.
  • Includes more robust underwriting requirements for a commercial loan (business purpose) versus a member business loan (1-4 family residential)
  • Mandates use of a credit risk rating system for commercial loans
  • Replaces specific loan to value requirements with the need to obtain sufficient collateral to support the risk inherent in the loan
  • Construction & Development Loans
    • Eliminates portfolio limit of 15% of net worth
    • Expands definition of loans and the additional methods by which collateral values can be established, in addition to including more complete definition of the costs that can be included in Construction & Development loans
    • Requires policy specifics on monitoring and disbursements
  • Eliminates the need to count non-member participations purchased in the MBL cap
  • Allows CUs to extend the 15% loans to one borrower limit by 10% if the excess is fully secured by marketable collateral
  • Removes 12.25% of assets criteria for the MBL cap and leaves the calculations as 1.75 times minimum net worth needed to be considered well-capitalized (currently 7%)
  • Spells out general policy requirements for MBL oversight and expertise
  • Revises prohibited loans and conflicts of interest
  • Provides streamlined program parameters for credit unions with less than $250 million assets and low commercial loan volumes
  • Preserves the grandfathering of MBL regulations of the seven states that have their own MBL rules

The full text of the final rule is available in the Federal Register.

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