Region V Director Overrode Examiners' Attempt to Limit Chetco's MBL Exposure

In case you missed it, there is an interesting excerpt from NCUA's Material Loss Review on Chetco FCU.

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.