CUNA Comment Letter

Gulf Opportunity Pilot Loan Program

December 14, 2005

Mr. Gary M. Jackson
Assistant Administrator for Size Standards
Small Business Administration
409 Third Street, S.W.
Mail Code 6530
Washington, D.C. 20416

Re: RIN 3245-AF43
Gulf Opportunity Pilot Loan Program

Dear Mr. Jackson,

The Credit Union National Association (CUNA) is pleased to provide comments in response to the Small Business Administration’s (SBA’s) interim final rule regarding the one-year Gulf Opportunity Pilot Loan (GO Loan) Program. The aim of the GO Loan Pilot is to expedite financing to small businesses in areas affected by Hurricanes Katrina and Rita. Under the GO Loan Pilot, the SBA will provide its full guaranty and streamlined centralized loan processing to qualified lending partners that agree to make expedited SBA 7(a) loans available to small businesses located in those disaster areas. The maximum loan amount is $150,000. GO Loans will be available through Sept. 30, 2006, to small businesses in the affected counties and parishes in the Gulf States. The loans will be modeled on SBAExpress loans, which carry an SBA guarantee. For the GO Loan Pilot, the SBA guaranty percentage will be 85 percent. Lenders will generally use their own paperwork and be responsible for evaluating the creditworthiness of applicants. The decision on whether to apply an SBA guaranty to the loans will be made on an expedited basis, with an anticipated turnaround by the SBA of 24 hours or less. By way of background, CUNA represents approximately 90% of the nation’s nearly 8,900 state and federal credit unions that serve more than 87 million members.

At the outset, CUNA indeed applauds the continued efforts of the SBA to aid the people and businesses in the disaster-stricken areas by providing affordable financial assistance through the SBA disaster (home disaster, business physical disaster, and economic injury) loans. In addition, SBA is providing an automatic 12-month deferment of principal and interest payments for SBA-serviced business and disaster loans that were in regular servicing status on August 29, 2005, in those primary counties/parishes designated as federal disaster areas. The GO Loan Pilot should certainly help speed financing for recovery and rebuilding in the Gulf area.

We also commend the SBA for working together with other agencies in this recovery effort, including the "Give a Lending Hand" Initiative. The National Credit Union Administration (NCUA) has joined with the SBA to encourage credit union staff -- active and retired, and especially those with specialized business lending experience -- to participate in the program. Those volunteers help SBA officials approve or deny loans for victims of Hurricanes Katrina, Rita, and Wilma, thereby facilitating the processing of disaster loans.

CUNA, however, has one concern with the GO Loan Pilot as it is currently established. All lenders that are authorized to make SBA-backed loans under the SBAExpress program are automatically eligible to make GO Loans. About 40 percent of SBA lenders are currently eligible. The materials on the SBA website note that “[o]ther lenders may also participate.” The materials also state that “Preferred Lender Program (PLP) lenders may request expedited processing for approval to participate in GO Loan.” The majority of credit unions involved in the SBA 504 Certified Development Company and 7(a) lending programs have not been approved as SBAExpress lenders. We have received inquiries from those credit unions about participation in the GO Loan Pilot. We found it difficult to locate information on the SBA website about how credit unions and other financial institution 7(a) lenders not currently authorized as SBAExpress lenders can qualify and apply to participate in the GO Loan Pilot.

We are aware that SBA Procedural Notice 5000-979 – Process for Lenders to Participate in GO Loan Pilot – contains a section detailing how PLP lenders not approved for SBAExpress can request to participate in GO Loan Pilot on an expedited basis. The Notice includes a section setting forth the procedural requirements for lenders not operating with Preferred Lenders Program (PLP) or SBAExpress authority to participate in the Pilot. Specifically, the notice indicates that such institutions “…must meet the Agency’s program requirements as set forth in the SBAExpress Program Guide for existing SBA lenders.” Finally, the Notice indicates that the SBA’s Sacramento Loan Processing Center will analyze such a lender’s request based on its loan volume and portfolio performance measures. In the case of credit unions, we understand this to mean that the Center would examine the applicant credit union’s experience making member business loans (MBLs) as well as its written MBL policies and procedures.

We believe that as a result of compliance with NCUA’s MBL rule, credit unions would also meet SBA’s requirements for the GO Loan Pilot. Under NCUA’s MBL rule, credit union boards of directors must adopt specific business loan policies and review them at least annually. The board must also use the services of an individual with at least two years direct experience with the type of lending the credit union will be engaging in. The experience must provide the credit union sufficient expertise given the complexity and risk exposure of the loans in which the credit union intends to engage. In addition, the rule allows a credit union to adopt analysis and documentation requirements in its MBL policy that are appropriate for the type or types of MBLs the credit union intends to make. However, it would be helpful for the SBA to provide guidance about this issue that is readily available on the GO Loan Pilot home page.

CUNA believes that the GO Pilot will prove to be a very effective and beneficial program for individuals and businesses in the Gulf area. CUNA, credit union leagues (especially the Louisiana Credit Union League, Mississippi Credit Union Association and Alabama Credit Union League), and individual credit unions across the country have contributed a great deal to credit unions and credit union members in the impacted area in the aftermath of the Hurricanes and continue to look for ways to assist in the recovery efforts. We feel strongly that the SBA should encourage as many SBA-approved lenders as possible to participate in order for the Pilot to have the maximum impact. This is especially important because the SBA has eliminated its Low Documentation Loan Program (LowDoc) for 7(a) lenders -- the streamlined program in terms of reduced paperwork for the lender and a quicker response by the SBA on its decision to guarantee. We think that the GO Loan Pilot eligibility requirements and participation application procedures for SBA-approved lenders operating without SBAExpress authority to participate in the GO Loan Pilot should be made as clear as possible so that those SBA-approved lenders desiring to participate understand those requirements and procedures. Therefore, we urge the SBA to ensure that information, including the Notice as well as the relevant sections of the SBAExpress Program Guide, is posted in a conspicuous spot on its GO Loan Pilot web page.

Thank you for the opportunity to share our comments. If you have any further questions, please contact Associate General Counsel Mary Dunn (mdunn@cuna.com) or Catherine Orr (corr@cuna.com) at our e-mail addresses or at (202) 638-5777.

Sincerely,

Mary Mitchell Dunn
CUNA SVP and Associate General Counsel

Catherine Orr
CUNA Senior Regulatory Counsel