| (a) Definitions. Definitions in TEX. FIN. CODE §121.002,
are incorporated herein by reference. As used in this section, the
following words and terms shall have the following meanings, unless
the context clearly indicates otherwise.
(1) "Borrower" means a member or any other person named
as a borrower, obligor, or debtor in a loan or extension of credit;
or any other person, including, but not limited to, a comaker, drawer,
endorser, guarantor or surety who is considered to be a borrower under
the requirements of subsection (i) of this section concerning aggregation
and attribution for commercial loans.
(2) "Commercial loan" means a loan or an extension
of credit to an individual, sole proprietorship, partnership, corporation,
or business enterprise for commercial, industrial, agricultural, or
professional purposes, including construction and development loans,
any unfunded commitments, and any interest a credit union obtains
in such loans made by another lender. A commercial loan does not include
a loan made for personal expenditure purposes; a loan made by a corporate
credit union; a loan made by a credit union to a federally insured
credit union; a loan made by a credit union to a credit union service
organization; a loan secured by a 1- to 4-family residential property
(whether or not the residential property is the borrower's primary
residence); a loan fully secured by shares in the credit union making
the extension of credit or deposits in another financial institution;
a loan secured by a vehicle manufactured for household use; and a
loan that would otherwise meet the definition of commercial loan and
which, when the aggregate outstanding balance plus unfunded commitments
less any portion secured by shares in the credit union to a borrower,
is equal to less than $50,000.
(3) "Control" means a person directly or indirectly,
or acting through or together with one or more persons who:
(A) own, control, or have the power to vote twenty-five
(25) percent or more of any class of voting securities of another
person;
(B) control, in any manner, the election of a majority
of the directors, trustees, or other persons exercising similar functions
of another person; or
(C) have the power to exercise a controlling influence
over the management or policies of another person.
(4) "Immediate family member" means a spouse or other
family member living in the same household.
(5) "Loan secured by a lien on a 1- to 4-family residential
property" means a loan that, at origination, is secured wholly or
substantially by a lien on a 1- to 4-family residential property for
which the lien is central to the extension of the credit; that is
the borrower would not have been extended credit in the same amount
or on terms as favorable without the lien. A loan is wholly or substantially
secured by a lien on a 1- to 4-family residential property if the
estimated value of the real estate collateral at origination (after
deducting any senior liens held by others) is greater than fifty (50)
percent of the principal amount of the loan.
(6) "Loan secured by a lien on a vehicle manufactured
for household use" means a loan that, at origination, is secured wholly
or substantially by a lien on a new and used passenger car or other
vehicle such as a minivan, sport-utility vehicle, pickup truck, and
similar light truck or heavy-duty truck generally manufactured for
personal, family, or household use and not used as a fleet vehicle
or to carry fare-paying passengers, for which the lien is central
to the extension of credit. A lien is central to the extension of
credit if the borrower would not have been extended credit in the
same amount or on terms as favorable without the lien. A loan wholly
or substantially secured by a lien on a vehicle manufactured for household
use if the estimated value of the collateral at origination (after
deducting any senior liens held by others) is greater than fifty (50)
percent of the principal amount of the loan.
(7) "Loan-to-value ratio for collateral" means the
aggregate amount of all sums borrowed and secured by the collateral,
including outstanding balances plus any unfunded commitment or line
of credit from another lender that is senior to the credit union's
lien, divided by the current collateral value. The current collateral
value must be established by prudent and accepted commercial loan
practices and comply with all regulatory requirements.
(8) "Member business loan" has the meaning assigned
by 12 C.F.R. Part 723.
(9) "Net worth" has the meaning assigned by 12 C.F.R.
Part 702.2.
(10) "Readily marketable collateral" means financial
instruments and bullion that are salable under ordinary market conditions
with reasonable promptness at a fair market value determined by quotations
based upon actual transactions on an auction or similarly available
daily bid and ask price market.
(11) "Residential property" means a house, townhouse,
condominium unit, cooperative unit, manufactured home, a combination
of a home or dwelling unit and a business property that involves only
minor or incidental business use, real property to be improved by
the construction of such structures, or unimproved land zoned for
1- to 4-family residential use but does not include a boat, motor
home, or timeshare property, even if used as a primary residence.
This applies to such structure whether under construction or completed.
(b) Parity. A credit union may make, commit to make,
purchase, or commit to purchase any member business loan it could
make if it were operating as a federal credit union domiciled in this
state, so long as for each transaction the credit union complies with
all applicable regulations governing such activities by federal credit
unions. However, all such loans must be documented in accordance with
the applicable requirements of this chapter.
(c) Commercial Loan Responsibilities and Operational
Requirements. Prior to engaging in the business of making commercial
loans, a credit union must address the responsibilities and operational
requirements under this subsection:
(1) Written policies. A credit union must establish
comprehensive written commercial loan policies approved by its board
of directors instituting prudent loan approval, credit underwriting,
loan documentation, and loan monitoring standards in accordance with
this paragraph. The board must review its policies at least annually
and, additionally, prior to any material change in the credit union's
commercial lending program or related organizational structure, in
response to any material change in the credit union's overall portfolio
performance, or in response to any material change in economic conditions
affecting the credit union. The board must update its policies when
warranted. Policies under this paragraph must be designed to identify:
(A) type(s) of commercial loans permitted;
(B) trade area;
(C) the maximum amount of assets, in relation to net
worth, allowed in secured, unsecured, and unguaranteed commercial
loans and in any given category or type of commercial loan and to
any one borrower;
(D) credit underwriting standards including potential
safety and soundness concerns to ensure that action is taken to address
those concerns before they pose a risk to the credit union's net worth;
the size and complexity of the loan as appropriate to the size of
the credit union; the scope of the credit union's commercial loan
activities; the level and depth of financial analysis necessary to
evaluate financial trends and the condition of the borrower and the
ability of the borrower to meet debt service requirements; requirements
for a borrower-prepared projection when historic performance does
not support projected debt payments; the financial statement quality
and degree of verification sufficient to support an accurate financial
analysis and risk assessment; the methods to be used in evaluating
collateral authorized, including loan-to-value ratio limits; the means
to secure various types of collateral; and other risk assessment analyses
including analysis of the impact of current market conditions on the
borrower.
(E) loan approval standards including consideration,
prior to credit commitment, of the borrower's overall financial condition
and resources; the financial stability of any guarantor; the nature
and value of underlying collateral; environmental assessment requirements;
the borrower's character and willingness to repay as agreed; the use
of loan covenants when warranted; and the levels of loan approval
authority commensurate with the proficiency of the individuals or
committee of the credit union tasked with such approval authority
in evaluating and understanding commercial loan risk, when considered
in terms of the level of risk the borrowing relationship poses to
the credit union;
(F) loan monitoring standards including a system of
independent, ongoing credit review and appropriate communication to
senior management and the board of directors; the concentration of
credit risk; and the risk management systems under subsection (d)
of this section; and
Cont'd... |
