1. (a) Authorization. A credit union may originate, invest in, sell, purchase, service, or participate in loans or otherwise extend credit in accordance with the Act, these Rules, and other applicable law.

2. (b) Written Policies. Each credit union, before engaging in any lending activity, shall establish written lending policies approved by its board of directors that establish prudent credit underwriting and documentation standards for each specific type of lending activity. The lending policies shall contain a general outline of the manner in which loans are made, serviced, and collected. In addition the policies must:

   1. (1) Be consistent with safe and sound credit union practices;
   2. (2) Be appropriate to the size and financial condition of the credit union and the nature and scope of its operations;
   3. (3) Be compatible with the size and expertise of the credit union's lending staff;
   4. (4) Be compliant with all related laws and regulations;
   5. (5) Be reviewed and approved by the credit union's board of directors at least annually;
   6. (6) Address loan portfolio diversification standards to avoid undue concentrations of risk;
   7. (7) Address underwriting standards that are clear and measurable;
   8. (8) Address loan administration procedures for monitoring the loss exposure from the loan portfolio; and
   9. (9) State the lending authority delegated to any individuals or committees by the board of directors.

3. (c) Underwriting Standards. To be considered prudent, a credit union's underwriting standards should reflect consideration of all credit evaluation factors relevant to the type of loan, including:

   1. (1) The capacity of the member to adequately service the debt from the source(s) specified by the member;
   2. (2) The value of the collateral;
   3. (3) The overall creditworthiness of the member;
   4. (4) The level of equity invested in the collateral (loan-to-value ratio);
   5. (5) The type of information and documentation necessary to approve new credit, renew credit, increase credit to existing borrowers, and change terms in previously approved credits;
   6. (6) A co-signer or other secondary source of repayment;
   7. (7) Any additional collateral or credit enhancement (such as guarantees or mortgage insurance);
   8. (8) Maximum loan maturities that relate to the anticipated source of repayment, the purpose of the loan, and the useful life of any collateral;
   9. (9) Loan pricing that reflects the credit union's cost of funds, overhead, credit risk premium, and a reasonable return;
   10. (10) The need for collateral protection insurance; and
   11. (11) Filing/recordation standards to ensure a valid lien.
4. (d) Loan Maturity Limit. Except when a higher maturity date is provided for elsewhere in this chapter, the maturity of a loan to a member may not exceed 15 years. Open-end credit is not subject to a regulatory maturity limit. However, the amortization scheduling on a line of credit balance shall not exceed 15 years.
5. (e) Liquidity. In addition to establishing controls for credit risks, credit unions shall establish procedures and guidelines to monitor and limit the total volume of loans outstanding, to ensure adequate liquidity. In setting such guidelines, the credit union shall consider various factors such as credit demand, the volatility of shares and deposits, and availability of alternative funding sources.

6. (f) Waivers. The commissioner in the exercise of discretion may grant a waiver in writing of any lending requirement described in this chapter. A decision to deny a waiver, however, is not subject to appeal. A wavier request must contain the following:

   1. (1) The requirement to be waived, the higher limit or the ratio sought;
   2. (2) An explanation of the need for the waiver or to raise the limit or ratio; and
   3. (3) Documentation supporting the credit union's ability to manage the additional risk from this activity.

Source Note:The provisions of this §91.701 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective August 10, 2003, 28 TexReg 6266; amended to be effective March 14, 2004, 29 TexReg 2637; amended to be effective November 9, 2006, 31 TexReg 9017.