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May 18, 2009
Categories: Consumer Lending

Loan Participations; NCUA Board Agenda

Posted by Steve Van Beek


NCUA's Office of Inspector General (OIG) recently released a report of the Material Loss Review of Norlarco Credit Union.  The report details the weaknesses in the credit union's Residential Construction Lending (RCL) program and management's inability to manage the riks associated with their RCL program.

Compliance officers are always looking for what NCUA might be stressing in upcoming examinations.  This report could give you an idea based on these findings:

"We also determined Colorado SSA and NCUA examiners did not adequately evaluate the safety and soundness of Norlarco‟s loan participation program. As a result, we believe SSA and NCUA examiners missed an opportunity to slow the RCL program‟s growth, which might have mitigated the loss to the NCUSIF.

Auditor Observations made as a result of our review of Norlarco‟s failure included:

  • Examiners did not view the participation program and the participation agreements as safety and soundness concerns fraught with risk.    
  • Examiners did not associate the rapid rise of loans sold through participations as a potential safety and soundness concern to Norlarco, or to the NCUSIF, but rather examiners merely viewed participations as a means to manage Norlarco‟s balance sheet risk."  (Page 4). 

  

NCUA issued a Letter to Credit Unions 08-CU-26 in November 2008 which included a copy of a Supervisory Letter sent to NCUA examiners regarding evaluating loan participation programs.  If you are involved with loan participation programs, taking a read through the Supervisory Letter will give you an idea of what your examiner might be looking for.


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NCUA has announced the agenda for its May 2009 Board meeting which takes place this Thursday, May 21.  

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