sba 504 lending regulatory considerations
DESCRIPTION
SBA 504 Lending Regulatory Considerations. Randy Christiansen National Bank Examiner OCC Large Bank Division. Overview of Risk Issues. Credit risk - Underwriting risks - Concentrations - legal lending limits - Appraisal regulations and supervisory loan-to-value limits - PowerPoint PPT PresentationTRANSCRIPT
1
Randy ChristiansenNational Bank Examiner
OCC Large Bank Division
SBA 504 LendingRegulatory Considerations
2
Overview of Risk Issues
Credit risk- Underwriting risks- Concentrations - legal lending limits- Appraisal regulations and supervisory loan-to-value limits- Regulatory guidance on commercial real estate lending
Liquidity risk Interest rate risk Reputation risks CRA benefits
3
Credit Risk Issues
Underwriting Risks – Summary Favorable risk structure Above average obligor risk Below average collateral and structural risk Relatively low credit loss type of lending
4
Credit Risk Issues (continued)
Underwriting Risks – Obligor Risk Above average risk of repayment Primary underwriting focus – repayment ability Principal or guarantor due diligence critical
5
Underwriting Risks – Structure and Collateral Favorable structure and collateral protection CAUTION: Collateral based lending Losses can and do occur
Credit Risk Issues (continued)
6
Credit Concentrations and Lending Limits Second lien loan Secondary market Quality underwriting and due diligence is key
Credit Risk Issues (continued)
7
Appraisal Regulation Requirements Appraisal regulations apply Business loan exemption may apply Appraisal independence standards Qualified appraisers and quality appraisals Poor appraisals or environmental studies
Credit Risk Issues (continued)
8
Supervisory Loan-to-Value (SLTV) Exceptions Temporary high LTV transaction High LTV status can be extended for construction
loans SLTV monitoring and reporting
Credit Risk Issues (continued)
9
Commercial Real Estate Risk Management Guidance Owner occupied exemption Development or construction phase Majority of cash flow test
Credit Risk Issues (continued)
10
Liquidity Risk Issues
Take-Outs and Secondary Market Second lien take-out Active secondary market Repurchases
11
Interest Rate Risk Issues
Rate Risk Management Negotiable rate structures Secondary market
12
Reputation Risks
CDC and SBA Secondary Market Borrower
13
Community Reinvestment Act (CRA)
Small business development Job creation, community and economic development Consideration given in CRA examinations CRA consideration a function of bank and loan size
- Loans of $1 million or less may qualify as small business loans
- Loans greater than $1 million may qualify as community development loans
14
Resources
SBA 504 Loan Program: Small Businesses’ Window to Wall Streetwww.occ.treas.gov/cdd/Insights_2-06.pdf
State listing of CDCswww.nadco.org/search_advanced.asp?mode=org
SBA information on the 504 productwww.sba.gov/services/financialassistance/sbaloantopics/cdc504/index.html
SBA regulationswww.sba.gov/tools/resourcelibrary/lawsandregulations/index.html
Lending limitswww.occ.treas.gov/fr/cfrparts/12CFR32.htm
Real estate lending and appraisalswww.occ.treas.gov/fr/cfrparts/12CFR34.htm (see subpart C)
Supervisory Loan-to-Value limitswww.occ.treas.gov/fr/cfrparts/12CFR34.htm (see Appendix A to Subpart D)
Proposed CRE Risk Management Guidancewww.occ.treas.gov/ftp/bulletin/2006-2.doc
Community Reinvestment Actwww.occ.treas.gov/fr/cfrparts/12CFR25.htm