BIRMINGHAM, Ala.—Outdated NCUA loan-term limits may be putting credit unions at a competitive disadvantage in fast-growing markets like solar financing and manufactured housing—but Chairman Kyle Hauptman’s regulatory relief push could be a means to finally open the door to change, says Dennis Dollar.
The former NCUA chairman pointed out there have been three periods over the past 25 where regulatory relief has been a priority at the NCUA board level.
“Once was during my tenure as NCUA chairman and the second was during Chairman Rodney Hood’s term,” explained the Dollar Associates principal. “Now Chairman Kyle Hauptman has stated that reg relief is a major priority of the remainder of his tenure as chairman and has been rolling out various areas of potential relief over the past several months. All are good, some are more substantive than others, but the overwhelming direction is certainly needed. Hopefully, he will continue the momentum and go even further.”
Operating as a one-member NCUA board, Hauptman has both advantages and disadvantages as he pursues this regulatory relief agenda, Dollar asserted.
“First, he has no pushback from his fellow board members. There are none. This is a tremendous opportunity to move forward aggressively with his reg relief proposals,” Dollar said. “The disadvantage is similar. Without a full complement of fellow NCUA board members, will he be willing to go forward aggressively when some may challenge whether a one-member NCUA board can take far-reaching regulatory action?”
Precedents clearly say that he can, Dollar noted.
“And Chairman Hauptman’s announced reg relief initiative seems to indicate that he intends to,” Dollar said.
Solar Lending
“One area we are hearing a lot of credit unions talking about possible reg relief that may have potential to hopefully make it on Chairman Hauptman’s list, while still being safe and sound, is the area of term limits on certain types of loans,” Dollar said.
Solar panel lending, for example, Dollar noted, is limited to a 20-year maximum term for credit unions but does not have such a limit for banks and other lenders.
“Therefore, credit unions either have to structure solar panel loans as home equity loans with a deed of trust on the property to get beyond a 20-year term – or else they often lose these loans to their competitors,” he said. “A lot of credit union members would rather not have to structure their solar panel loans as home equity loans, so, credit unions lose the business to a local bank.”
The same is true for manufactured housing loans, Dollar said.
Dennis Dollar
“Today’s manufactured houses are not your granddad’s house trailer,” Dollar emphasized. “The quality and extent of the manufactured home is pretty darned close to a built on a slab contractor-built home. In fact, many are set on a slab just like a builder would start from. Yet, the term is limited to 20 years on a manufactured home unless it is attached to land that the homeowner owns.”
Getting a longer-term loan to place a manufactured home, even on a slab, on property owned by a relative or even one of today’s very well-maintained manufactured home developments is impossible from a credit union because of the term limits in regulation, Dollar said.
“Therefore, credit unions lose out on many of these excellent loans because they cannot compete on the terms with a 20-year loan versus the bank’s 25- or 30-year loan maximum,” he said.
These are two very concrete areas where NCUA should give a careful analysis and focused look for possible reg relief, Dollar asserted.
“One-size-fits-all and outdated loan term limitations by regulation are costing credit unions a great deal of business,” he said. “The underwriting should be strong to determine if a longer term is appropriate based upon the ability to pay of that borrower and the value of the collateral involved.”
But a regulatory term cap for these important classifications of loans has left many credit unions watching their members go elsewhere when a good reg relief initiative might give the best answer for the member and the credit union, contended Dollar.
Loan Term Limits
“Hopefully, as the Chairman continues to look for opportunities that may have potential for being included for significant relief during the current regulatory relief initiative, these term limits revisions will eventually get some legs by being proposed and acted upon,” Dollar concluded. “Chairman Hauptman is to be commended for putting the numerous items he has proposed on the discussion list for what the industry hopes is truly valuable regulatory relief. Term limit extensions for solar panel loans and manufactured housing loans would be a great addition to the agenda, and we’re hearing a lot of credit unions talking excitedly that perhaps the Chairman’s initiative may extend in this arena.”