To take advantage of new MBL rules, look at policies before technology.
To take advantage of new MBL rules, look at policies before technology.
By Naseer Nasim
The National Credit Union Administration’s Feb. 18 update to member business lending rules opens new opportunities for credit unions, starting Jan. 1, 2017. Proposed last June, the rule eliminates the waiver process and allows credit unions to develop new commercial writing standards. Credit unions eager to diversify their MBL capabilities should begin efforts to prepare their policies, practices and technology now.
A first instinct might be to assess technology and decision support systems. This is absolutely necessary; however, technology must be configured around a credit union’s updated credit and loan policies. Without updated policies that outline new, acceptable underwriting criteria, credit unions do not have a solid foundation for the technology to run. This is where they should start.
Many credit unions are already wisely seeking strategic council to help revise policies and determine creditworthiness criteria based on the increased variety of loan structures they will now be able to offer. These modified policies will drive a credit union’s lending business moving forward, including its use of technology for complex commercial loan and standard/small business loans. As they consider system enhancements or additions based on new MBL goals, credit unions must take into account the multifaceted role technology will have. Taking on a line of business of more complex loans requires credit unions to lean more heavily on technology for decision support, system flexibility, workflow, customer relationship management, and compliance in order to maintain consistent loan origination processes. At the same time, systems must be capable of monitoring funded loans, managing exceptions and enhancing the institution’s portfolio risk management practices. The NCUA’s decision underscores the need for ongoing risk management and regular management and board reporting, which will be hard for credit unions to accomplish without the right tools.
Expanding MBL capacity comes with many adjustments for credit unions. The challenge should be embraced and welcomed. As more credit unions focus on growing and diversifying their MBL activities in a sound way, they should devote time now to ensuring their policies and portfolio risk management practices are in place. When the New Year comes and the regulation is in effect, their energy can be spent where it needs to be: on building strong and lasting business relationships.
Naseer Nasim is CEO of Baker Hill, a leading provider of SaaS solutions for common loan origination, relationship management and smart data analytics. With nearly 30 years of experience, Baker Hill is a top provider of member business lending services.
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