Loans and underwriting during COVID-19

Paycheck Protection Program lending, loan changes, and underwriting were among the top issues credit union business lenders shared during a recent roundtable discussion.

Last week, lenders from credit unions with assets of more than $1 billion participated in CUNA’s “Business Lending Roundtable: The COVID-19 Pandemic and Credit Unions.” Lenders from smaller credit unions participated in similar events earlier in the week.

CUNA offers the series of recorded discussion webinars as a free member benefit. Find them at the CUNA COVID-19 resource page.

Top issues participants discussed included:

► Small Business Administration (SBA) Paycheck Protection Program (PPP) loans. About two-thirds of attendees from larger credit unions are  participating in the PPP. They discussed determining how much to fund in PPP loans, when to grant forgiveness, and how to validate borrower data and documents.

Last week, President Trump signed a bill adding $310 billion to the PPP fund, with $60 billion allocated for credit unions and small community banks. But lenders were unsure how many more small businesses would receive funding due to a backlog created when the initial round of funding ran out earlier this month.

“While the SBA has again opened its portal to accept additional loan applications, we continue to hear from credit unions that the SBA ETran system is experiencing unprecedented demand which continues to slow response time.  It’s imperative to stay vigilant and  active with  the ETran system,” says Jared Ihrig, CUNA’s chief compliance officer. “We also anticipate inquiries will increase for credit unions this week because consumers are being urged in some instances  to contact smaller lenders because they may have a better chance of obtaining funding of their loan requests.”

► Loan changes. Many credit unions are offering loan payment deferrals. Participants discussed whether to grant automatic deferrals or require documentation to prove there is a need, and how to adjust risk ratings on those loans.

► Underwriting. While credit unions are still originating new loans, they need to adjust underwriting standards given high levels of unemployment and loss of income.

“It’s a question of validating current employment and income,” says Joe Hyatt, partner and chief credit officer at Development Finance Training and Consulting. “What we usually rely on when making these loans is historical performance. Can we still do that, and to what degree of certainty do we have?”

Lenders should try to be flexible when trying to meet members’ financial needs, says Patricia O’Connell, senior federal compliance counsel for CUNA. But they should also balance the safety and soundness of the credit union and take reasonable efforts to be diligent.

Documentation should indicate COVID-19 was a factor in making decisions, she says.

► Member communication. Credit unions are communicating with their members through a variety of channels, including website, emails, and phone conversations. Credit unions are not only letting their business lending members know how the credit union can assist, they’re checking in to see how those members are doing.

“We don’t know what the new normal is going to be,” says Dana Sumner, president/CEO of Development Finance Training and Consulting. “We’re in uncertain times and we don’t know what’s coming. We need to adjust as it comes and be as proactive as possible.”