Compliance Blog

Yesterday, NCUA released a communication designed to help credit unions communicate the effects of NCUA's corporate stabilization program to their memberships.  Access the communication here.   The communication describes what happened, and it displays the NCUA logo. 

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Yesterday, President Obama announced plans to use government funds to purchase securities backed by SBA loans.  Coupled with tweaks to SBA programs (higher guarantees, lower fees), the Obama administration hopes this will kick-start lending to small businesses.  Read the press release here.  Read a Q and A document that describes the hopes of the new program here.  The following two Q and A's sum things up quite nicely, in my humble opinion.

Why will purchasing securities on the secondary market help small business owners?

Under normal circumstances, many banks sell a portion of their loans to companies that pool them together and sell them as securities to investors. This provides banks with new capital that they can use to make additional loans. The result is that the secondary markets significantly increase the amount of lending banks can do to small businesses.

Over the past year, however, the secondary markets for 7(a) and first lien 504 securities have ground to a virtual halt. The institutions that securitize these loans have been unable to find buyers for the securities they have already packaged. This has in turn reduced their willingness to purchase new loans from banks. Since banks depend on the secondary markets for liquidity, they have increasingly become reluctant to extend credit to small businesses. Today’s announcement will help unlock secondary markets by providing assurances that the government will stand ready to purchase 7(a) and 504 first-lien securities. If you apply for a 7(a) or 504 loan at your local community bank, that bank will be more willing to lend because it will have confidence that the Treasury Department will be a ready buyer of the loan in the secondary markets.

Which loans are affected by the fee elimination and higher guarantees?

Beginning this week, the SBA will temporarily raise guarantees and eliminate fees for borrowers on certain of its 7(a) loans. 7(a) loans, which are partially guaranteed by the SBA, are issued by a bank to a small business to support its operations.

Additionally, the SBA has temporarily eliminated fees for borrowers and third party lenders on its 504 Certified Development Company Loans. These loans offer growing small businesses long-term, fixed-rate financing for major fixed assets, such as land, buildings and machinery and equipment. These loans are aimed at fostering community development, creating jobs and encouraging modernization.

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Here's the shameless plug.  Next year will be a bear, from a compliance officer's perspective.  One of the largest issues will be complying with Regulation Z.  NAFCU is offering a webcast in April that will provide an overview of the changes that will take affect July 1, 2010.  Believe me, with a change this large, you can never start planning early enough.  Access information about the webcast here.   NAFCU also has planned a series of webcasts this year that break down the changes into bite-sized sections.  Go here to see more about the NAFCU Reg Z series.