NCUA’s latest issue of The NCUA Report contains a list of frequently asked questions regarding the impact of the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155). President Donald Trump signed the bill into law in May.
S. 2155 makes a number of statutory changes, and NCUA’s list addresses many of them, including major changes in the area of member business lending.
Section 105 of the act amends the statutory member business loan limit to exempt all loans secured by a 1- to 4-family dwelling (residential property) from the definition of a member business loan, and the board made the necessary change to its rules and regulations May 30.
The NCUA updated the Call Report Instructions for the June 30, 2018, cycle. Credit unions will only report loans that meet the revised definition of a member business loan in account 400A, and should no longer report any loans secured by a 1- to 4-family residential property in account 400A.
Additionally, the NCUA amended the Call Report instructions related to how non-member business loans are reported for purposes of calculating a credit union’s risk-based net worth requirement.
All “long-term real estate loans” that are secured by a 1- to 4-family residential property are now included in the “long-term real estate loans” risk portfolio for purposes of calculating a credit union’s risk-based net worth ratio.
Loans secured by a 1- to 4-family residential property that will contractually refinance, reprice, or mature within the next five years are included in the “average-risk assets” risk portfolio for purposes of calculating a credit union’s risk-based net worth ratio.
Additionally, non-member business loans are no longer included in the “member business loans outstanding” risk portfolio for purposes of calculating a credit union’s risk-based net worth ratio.
Non-member business loans are now included in the risk-based net worth risk portfolio, based on the type of loan and underlying collateral.
As with all loans, a credit union’s risk assessment and management should be appropriate for the type of loan and the specific risks associated with the borrowing arrangement. The repayment source should always be identified and evaluated for sufficiency and reliability.
Loans secured by a 1- to 4-family residential property that is not owner-occupied have some risk characteristics that are similar to commercial real estate loans. Credit unions should have credit risk-management policies and processes suitable for the risks specific to this type of lending.
The NCUA Report also examines changes from S. 2155 affecting appraisals and the Home Mortgage Disclosure Act (HMDA) in the third quarter issue.