The current landscape for MBL regulation
In a recent Sageworks webinar, Ancin Cooley of Synergy Credit Union Consulting took a deep dive into five areas that credit unions interested in growing their MBL portfolios need to be aware of in order to effectively manage risk in the MBL portfolio.
The first module that Ancin covered during the webinar was the current state of credit unions and the current regulatory environment. He showcased several statistics, including that, while the number of credit unions in the United States has declined since 2012, the number of credit union members in the U.S. has grown over that same period, indicating that “there are more and more consumers that are recognizing the value of the credit union movement”. Ancin also discussed several key metrics and how they vary from state to state across the country, including ROAA, Loans-to-Shares, Delinquency Rate, and Annual Loan Growth.
To wrap up his assessment of the current environment, Ancin showed that since 212 there has been a steady increase in loan volume of MBLs. Ancin commented that this is consistent with the trend he has seen with his clients either beginning to dip their toes into the MBL market, or other clients that are aggressively competing with community banks on commercial lending.
Next, Ancin moved into a discussion of the current regulatory environment around MBL. He started with a compare-and-contrast of MBL and commercial loans. He pointed out a few areas that can be tricky for credit unions around these distinctions, including residential property. Loans fully secured by a 1-4 family residential property that is the member’s primary residence are considered neither MBL or commercial loans by regulators. Ancin cautioned the webinar attendees to check that none of their members had loans on more than one “primary residence”, as he said that is often an indication that a member has slid into the residential mortgage portfolio, when in actuality they have rental properties that pose significantly more risk to the credit union.
Ancin closed out the first module of the webinar by discussing some recent changes to the MBL rules for credit unions. He pointed out that while the regulation was designed to ease the burden on small credit unions (less than $250 million in assets) that do a limited amount of MBL or commercial lending, it is still important for every credit union to have an MBL policy in place that clearly outlines how the credit union wants to grow the MBL portfolio and its risk appetite. Specifically, Ancin mentioned that credit unions that make commercial loans will need to have a comprehensive credit risk rating system in place to measure risk before any losses are incurred.
To learn more about growing and managing risk in the MBL portfolio, watch the entire webinar.