Sorting member business loans

NCUA’s recent rule casts doubt on the classification of certain loans.

The Economic Growth Act signed by President Trump on May 24, 2018, provided credit unions with some regulatory relief. The National Credit Union Administration followed this up by removing certain loans from the definition of a “member business loan.” While this is good news for credit unions desiring an expansion of the MBL cap, NCUA’s June 2018 final rule creates a legal/regulatory limbo for non-owner-occupied residential rental properties.

Prior to EGA, the Federal Credit Union Act defined an MBL as “any loan, line of credit, or letter of credit, the proceeds of which will be used for a commercial, corporate or other business investment property or venture, or agricultural purpose but does not include an extension of credit that is fully secured by a lien on a 1-to 4-family dwelling that is the primary residence of a member.” [Emphasis added] Under this definition, non-owner-occupied rental properties were deemed to be MBLs.

Interestingly, commenters to the NCUA’s March 2016 final MBL rule supported this definition because they “indicated they would experience significant regulatory relief [as] certain MBLs, such as loans secured by a 1- to 4-family residential property that is not the member’s primary residence, will no longer be subject to full commercial lending safety and soundness requirements.” But I digress.

The EGA removed the words “primary residence of a member” from the definition, and provided that nothing would “preclude the National Credit Union Administration from treating an extension of credit that is fully secured by a lien on a 1- to 4-family dwelling that is not the primary residence of a member as a member business loan.”

 

continue reading »