NCUA examiners were trying to place limits on the credit union's member business loan (MBL) portfolio; but the Region V Regional Director overrode its examiners granting Chetco's appeal to increase its MBL exposure.
“Examiners issued a DOR and placed restrictions on further MBL lending. In the DOR, examiners required Chetco management to reduce the MBL portfolio as a percentage of net worth to 500 percent by December 31, 2009. Management appealed the reduction of MBL’s, stating that Chetco had approximately $100 million in MBL loan applications in the pipeline prior to the NCUA issuing the DOR. In its appeal, Chetco management requested that the Region:
[e]liminate the quarterly Member Business Loan (MBL)/Net Worth ratio targets and increase the December 31, 2009 limits on the MBL/Net Worth ratio from 500 percent to 600 percent.
In a letter to Chetco management dated March 3, 2009, the Region V Regional Director granted the appeal.”
At the time the Region V Regional Director granted Chetco's appeal, the credit union had a composite CAMEL rating of 3 indicating supervisory concerns.
This does make you question the judgement of the Region V Regional Director, especially when the available evidence showed that Chetco was a supervisory concern and MBL delinquencies were on the rise.