Board due diligence
The board, in its role as watchdog, needs to ensure that management has a thorough understanding of the risks, underwriting, pricing, and terms of each loan program, whether it’s member business lending, real estate, or construction lending, he adds.
In fact, since loan participations are more complicated and have stirred the attention of regulators, the board’s role requires special attention, notes the white paper. Participation loans should be reported to the board on a monthly basis as a separate program, with trends in loan growth, charge-offs, and delinquencies.
Mundine suggests boards consider a series of questions and action steps in their deliberations and due diligence for loan participations.
Questions for boards to ask about loan participation proposals include:
If the credit union decides to undertake loan participations, Mundine says the board should:
Next: Loan participation case studies