The National Credit Union Administration on June 17 urged credit unions to participate in the Federal Reserve's Main Street Lending Program, if appropriate.
The Program is designed to help credit flow to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 crisis, but now need loans to help maintain their operations until they have recovered from, or adapted to, the impacts of the pandemic.
The program offers 5-year loans, with floating rates, and principal and interest payments deferred. The loans range in size from $250,000 to $300 million.
The loans will be offered as a participation with the Federal Reserve providing 95 percent of the loan and the credit union providing 5 percent. Credit unions will service the loans.
Read a review of the program.
Showing posts with label Participations. Show all posts
Showing posts with label Participations. Show all posts
Thursday, June 18, 2020
Thursday, May 31, 2018
NCUA Opines on Loan Participation Agreements
In a March 22 legal opinion letter, the National Credit Union Administration wrote that certain provisions of the loan participation regulation must be met throughout the life of the transaction.
The letter noted that Section 701.22(d) "emphasizes the need for adequate documentation and due diligence from before the time of purchase throughout the life of the loan."
NCUA further noted that the "loan participation agreement identify each participated loan, enumerate servicing responsibilities for that loan, and include disclosure requirements regarding the ongoing financial condition of that loan, the borrower, and the servicer." The legal opinion letter stated if a loan participation agreement involves multiple loans, the documentation requirement can be met by an addendum or schedule, which identifies each loan and a participant’s interest in that loan.
However, NCUA stated that its "regulation does not prohibit servicing practices that may make administering multiple loan participations more efficient", such as netting payments across multiple performing loans.
Read the legal opinion letter.
The letter noted that Section 701.22(d) "emphasizes the need for adequate documentation and due diligence from before the time of purchase throughout the life of the loan."
NCUA further noted that the "loan participation agreement identify each participated loan, enumerate servicing responsibilities for that loan, and include disclosure requirements regarding the ongoing financial condition of that loan, the borrower, and the servicer." The legal opinion letter stated if a loan participation agreement involves multiple loans, the documentation requirement can be met by an addendum or schedule, which identifies each loan and a participant’s interest in that loan.
However, NCUA stated that its "regulation does not prohibit servicing practices that may make administering multiple loan participations more efficient", such as netting payments across multiple performing loans.
Read the legal opinion letter.
Friday, January 29, 2016
Medallion Loans Affect Performance of First Jersey and Quorum
It appears that taxi medallion loans are beginning to weigh on the performance of First Jersey Credit Union (Wayne, NJ) and Quorum Federal Credit Union (Purchase, NY), according to the credit unions' 4th quarter Call Report.
First Jersey Credit Union
First Jersey Credit Union reported a 2015 loss of almost $2.7 million. The 2015 loss arose from an increase in provision for loan losses. Loan loss provisions for 2015 was approximately $3.1 million -- up from almost $1.4 million for 2014.
As a result of the 2015 loss, the credit union's net worth ratio fell 125 basis points during the year to 8.54 percent at the end of 2015.
The credit union in its most recent Call Report had almost $3.9 million in delinquent loans or 4.5 percent of all loans are 60 days or more past due. However, business loans disproportionately represent delinquent loans.
First Jersey is reporting almost 18.5 million in business loans, of which $16,3 million are commercial loans. Presumably, most of the these commercial loans were for tax medallions.
At the end of 2015, $1.45 million in business loans were 60 days or more past due. This means 7.83 percent of all business loans were past due. In addition, early delinquencies (30 days to 59 days past due) were $3 million. In other words, almost a quarter of all business loans were at least 30 days past due.
First Jersey also wholly owns USA Medallion Funding LLC, a credit union service organization (CUSO) that specializes in medallion lending. At the end of 2015, First Jersey has slightly more than $2 million invested in the CUSO.
At the end of 2015, First Jersey is reporting loan loss reserves of slightly less than $3 million -- up from $1.1 million a year earlier. The credit union's net worth was almost $12.3 million at the end of 2015. This means the credit union has a combined buffer of almost $15.3 million for both expected and unexpected losses.
First Jersey management needs to disclose to its members its total exposure to taxi medallion loans, including the exposure of its wholly owned CUSO.
Quorum Federal Credit Union
Quorum Federal Credit Union reported at the end of 2014 the credit union held $78.4 million in taxi participation loans. Taxi participation loans are collateralized by taxi medallions, primarily in the cities of Philadelphia, New York, Boston, and Chicago. The Credit Union owns a percentage of each loan, primarily between 80 percent and 90 percent.
Quorum reported that delinquent loans increased from $8.3 million at the end of 2014 to $21 million at the end of 2015. At the end of 2015, 2.57 percent of its loans were 60 days or more past due compared to 1.13 percent a year earlier.
However, these delinquencies are disproportionately in participation loans. Total participation loans were $127.8 million and delinquent participation loans were $10.4 million. Presumably, the delinquent loans are connected with taxi participation loans; but we will need to wait for the credit union's 2015 Annual Report for more details as the Call Report lacks sufficient granularity.
According to the credit union's Financial Performance Report, the delinquency rate on participation loans went from 0 percent on December 2014 to 8.17 percent as of the end of 2015. In addition, there were $2 million in participation loans that were between 30 days and 59 days past due.
Quorum reported provisions for loan and lease losses of $7.9 million for 2015 -- this is up from $4.7 million for 2014. This increase in provisioning caused the credit union's loan loss reserves to increase from $6.1 million at the end of 2014 to $7.7 million at the end of 2015.
However, delinquent loans grew at a faster rate than allowances for loan losses. Quorum reported a coverage ratio (allowances for loan losses to delinquent loans) at the end of 2015 of 36.79 percent -- down from 73.57 percent a year earlier.
The credit union has total net worth of $72.2 million.
This indicates that Quorum has a combined buffer of almost $80 million to absorb anticipated and unanticipated losses.
First Jersey Credit Union
First Jersey Credit Union reported a 2015 loss of almost $2.7 million. The 2015 loss arose from an increase in provision for loan losses. Loan loss provisions for 2015 was approximately $3.1 million -- up from almost $1.4 million for 2014.
As a result of the 2015 loss, the credit union's net worth ratio fell 125 basis points during the year to 8.54 percent at the end of 2015.
The credit union in its most recent Call Report had almost $3.9 million in delinquent loans or 4.5 percent of all loans are 60 days or more past due. However, business loans disproportionately represent delinquent loans.
First Jersey is reporting almost 18.5 million in business loans, of which $16,3 million are commercial loans. Presumably, most of the these commercial loans were for tax medallions.
At the end of 2015, $1.45 million in business loans were 60 days or more past due. This means 7.83 percent of all business loans were past due. In addition, early delinquencies (30 days to 59 days past due) were $3 million. In other words, almost a quarter of all business loans were at least 30 days past due.
First Jersey also wholly owns USA Medallion Funding LLC, a credit union service organization (CUSO) that specializes in medallion lending. At the end of 2015, First Jersey has slightly more than $2 million invested in the CUSO.
At the end of 2015, First Jersey is reporting loan loss reserves of slightly less than $3 million -- up from $1.1 million a year earlier. The credit union's net worth was almost $12.3 million at the end of 2015. This means the credit union has a combined buffer of almost $15.3 million for both expected and unexpected losses.
First Jersey management needs to disclose to its members its total exposure to taxi medallion loans, including the exposure of its wholly owned CUSO.
Quorum Federal Credit Union
Quorum Federal Credit Union reported at the end of 2014 the credit union held $78.4 million in taxi participation loans. Taxi participation loans are collateralized by taxi medallions, primarily in the cities of Philadelphia, New York, Boston, and Chicago. The Credit Union owns a percentage of each loan, primarily between 80 percent and 90 percent.
Quorum reported that delinquent loans increased from $8.3 million at the end of 2014 to $21 million at the end of 2015. At the end of 2015, 2.57 percent of its loans were 60 days or more past due compared to 1.13 percent a year earlier.
However, these delinquencies are disproportionately in participation loans. Total participation loans were $127.8 million and delinquent participation loans were $10.4 million. Presumably, the delinquent loans are connected with taxi participation loans; but we will need to wait for the credit union's 2015 Annual Report for more details as the Call Report lacks sufficient granularity.
According to the credit union's Financial Performance Report, the delinquency rate on participation loans went from 0 percent on December 2014 to 8.17 percent as of the end of 2015. In addition, there were $2 million in participation loans that were between 30 days and 59 days past due.
Quorum reported provisions for loan and lease losses of $7.9 million for 2015 -- this is up from $4.7 million for 2014. This increase in provisioning caused the credit union's loan loss reserves to increase from $6.1 million at the end of 2014 to $7.7 million at the end of 2015.
However, delinquent loans grew at a faster rate than allowances for loan losses. Quorum reported a coverage ratio (allowances for loan losses to delinquent loans) at the end of 2015 of 36.79 percent -- down from 73.57 percent a year earlier.
The credit union has total net worth of $72.2 million.
This indicates that Quorum has a combined buffer of almost $80 million to absorb anticipated and unanticipated losses.
Wednesday, September 9, 2015
NCUA: FICUs May Buy Participation in Loan Generated through Indirect Lending Channels
The National Credit Union Administration (NCUA) in a legal opinion letter to the Georgia Credit Union Affiliates stated that a federally insured credit union (FICU) is permitted to purchase a participation in a loan generated by an indirect lending arrangement under limited circumstances.
According to NCUA, an expansive reading of its rule would treat a retailer as performing an administrative function, which is an extension of the FICU's or eligible organization's lending operations, and not as a separate lender generating the loan.
NCUA cautioned that in an indirect lending arrangement the final underwriting decision must reside with the FICU or eligible organization and the retailer must assign the loan or sales contract to a FICU or eligible organization very soon after it is signed by the borrower.
It is NCUA's view that the longer the time period between the formation of the contract and its assignment, the greater the likelihood that the arrangement will be treated as a purchase of a third party loan instead of making a loan through an indirect channel.
Read the legal opinion letter.
According to NCUA, an expansive reading of its rule would treat a retailer as performing an administrative function, which is an extension of the FICU's or eligible organization's lending operations, and not as a separate lender generating the loan.
NCUA cautioned that in an indirect lending arrangement the final underwriting decision must reside with the FICU or eligible organization and the retailer must assign the loan or sales contract to a FICU or eligible organization very soon after it is signed by the borrower.
It is NCUA's view that the longer the time period between the formation of the contract and its assignment, the greater the likelihood that the arrangement will be treated as a purchase of a third party loan instead of making a loan through an indirect channel.
Read the legal opinion letter.
Wednesday, September 2, 2015
Arkansas FCU Booted from $17.5 Million Loan Participation
At the request of the Arkansas Bankers Association, Arkansas Federal Credit Union, the state's 10th largest financial institution, was disinvited from participating in a $17.5 million loan for the Little Rock Tech Park.
The Arkansas Bankers Association pointed out that it would be a stretch for the Little Rock Tech Park Authority to qualify for credit union membership.
Bankers also objected to a tax-exempt credit union earning interest from a borrower supported by taxpayers via a sales tax approved by voters.
Read more.
The Arkansas Bankers Association pointed out that it would be a stretch for the Little Rock Tech Park Authority to qualify for credit union membership.
Bankers also objected to a tax-exempt credit union earning interest from a borrower supported by taxpayers via a sales tax approved by voters.
Read more.
Thursday, February 13, 2014
Soliciting CUs to Participate in a Syndicated Loan to U-Haul
BancAssets, LLC is soliciting credit unions to participate in a $50 million loan to AMERCO, the publicly-traded parent of U-Haul.
Last fall, BancAssets, LLC closed on a $100 million loan for AMERCO. Four credit unions participated in this transaction.
The solicitation stated:
The solicitation stated that the minimum commitment was lowered to $500,000.
Last fall, BancAssets, LLC closed on a $100 million loan for AMERCO. Four credit unions participated in this transaction.
The solicitation stated:
We are pleased to offer you the opportunity to participate in financing an additional $50 million loan for U-Haul. We established a corresponding CUSO so that you can participate by loaning and investing dollars into AMERCO Loan 2, LLC.
The solicitation stated that the minimum commitment was lowered to $500,000.
Friday, January 10, 2014
NCUA's Supervisory Focus for 2014
In a letter to credit unions, NCUA identified four areas of supervisory focus for 2014: interest rate risk, cybersecurity threats, money services businesses, and private student lending.
In addition, NCUA will examine credit unions to assess their compliance with the following new rules and regulations: loan participation rule, ability-to-pay and qualified mortgage standards, and credit union service organization rule.
Read the letter.
In addition, NCUA will examine credit unions to assess their compliance with the following new rules and regulations: loan participation rule, ability-to-pay and qualified mortgage standards, and credit union service organization rule.
Read the letter.
Sunday, November 24, 2013
Northern Piedmont FCU Sues Employees of Failed CU
Northern Piedmont Federal Credit Union (Culpepper, VA) has filed a lawsuit against three employees of failed Lynrocten Federal Credit Union (Lynchburg, VA).
According to the complaint, Northern Piedmont entered into multiple loan-participation agreements with Lynrocten.
From 2009 through 2011, Northern Piedmont wired more than $3 million to Lynrocten. Court documents further state Northern Piedmont has subsequently lost “at least $1,695,793.24.”
According to court documents, Northern Piedmont states it learned from NCUA investigators that only one loan allegedly supporting the loan-participation agreements was legitimate.
Read the story.
According to the complaint, Northern Piedmont entered into multiple loan-participation agreements with Lynrocten.
From 2009 through 2011, Northern Piedmont wired more than $3 million to Lynrocten. Court documents further state Northern Piedmont has subsequently lost “at least $1,695,793.24.”
According to court documents, Northern Piedmont states it learned from NCUA investigators that only one loan allegedly supporting the loan-participation agreements was legitimate.
Read the story.
Thursday, November 7, 2013
$22 Million Business Loan Participation
I received the following e-mail yesterday morning from LPC Services regarding a $22 million member business loan participation from a credit union. (click on image to enlarge)
A $22 million participation is a large business loan.
It does beg the question -- should a loan of that size receive a taxpayer subsidy?
A $22 million participation is a large business loan.
It does beg the question -- should a loan of that size receive a taxpayer subsidy?
Wednesday, July 4, 2012
Navy Enters Commercial Loan Participation Market
Navy Federal Credit Union announced the introduction of a commercial loan participation program which will buy member business loans from other credit unions.
In announcing the commercial loan participation program, Navy FCU stated that it had ample capacity to partner with other credit unions on commercial loans. As of March 2012, Navy FCU reported holding approximately $179 million in member business loans and has unused member business loan capacity of almost $5.7 billion.
According to Navy FCU, the benefit for the partnering credit union is this will reduce the hit toward its aggregate member business loan cap of 12.25 percent of assets, while retaining the servicing commitment and the member relationship.
Read the press release.
In announcing the commercial loan participation program, Navy FCU stated that it had ample capacity to partner with other credit unions on commercial loans. As of March 2012, Navy FCU reported holding approximately $179 million in member business loans and has unused member business loan capacity of almost $5.7 billion.
According to Navy FCU, the benefit for the partnering credit union is this will reduce the hit toward its aggregate member business loan cap of 12.25 percent of assets, while retaining the servicing commitment and the member relationship.
Read the press release.
Wednesday, September 22, 2010
Credit Union Participations
As of June 2010, credit unions reported $12.4 billion in outstanding loan participations.
The majority of the loan participations were business loans. Participations in member business loans (minus construction and development (C&D) loans) was slightly more than $3.1 billion and nonmember business loan participations (minus C&D loans) exceeded $4 billion. Federally-insured credit unions also reported holding almost $462 million in C&D participations.
Outstanding participations in real estate and consumer loans were $2.9 billion and $1.1 billion, respectively.
NCUA has cautioned credit unions to do their due diligence when engaging in loan participations due to the high delinquency rate ($4.14 percent) associated with participation loans.
The following table lists the 50 credit unions with the largest amount of loan participations and the percent of loan portfolio comprised of loan participations. (click on image to enlarge)
The majority of the loan participations were business loans. Participations in member business loans (minus construction and development (C&D) loans) was slightly more than $3.1 billion and nonmember business loan participations (minus C&D loans) exceeded $4 billion. Federally-insured credit unions also reported holding almost $462 million in C&D participations.
Outstanding participations in real estate and consumer loans were $2.9 billion and $1.1 billion, respectively.
NCUA has cautioned credit unions to do their due diligence when engaging in loan participations due to the high delinquency rate ($4.14 percent) associated with participation loans.
The following table lists the 50 credit unions with the largest amount of loan participations and the percent of loan portfolio comprised of loan participations. (click on image to enlarge)
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