(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.     
      (b) Written Policies. Before engaging in any lending activity, each credit union shall establish written lending policies that set 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) Be consistent with safe and sound credit union practices;       
        (2) Be appropriate to the size and financial condition of the credit union and the nature and scope of its operations;       
        (3) Be compatible with the size and expertise of the credit union's lending staff;       
        (4) Be compliant with all related laws and regulations;       
        (5) Be reviewed and approved by the credit union's board of directors at inception and annually, thereafter;       
        (6) Address loan portfolio diversification standards to avoid undue concentrations of risk;       
        (7) Address loan documentation and underwriting standards that are clear and measurable;       
        (8) Address loan administration procedures for monitoring the loss exposure from the loan portfolio;       
        (9) Address loan pricing guidelines to ensure that the rate of return is consistent with the risk from the lending activity; and       
        (10) State the lending authority delegated to any individuals or committees by the board of directors.       
      (c) Loan Documentation. The lending policies shall include loan documentation practices that:      
        (1) Enable the credit union to make an informed lending decision and to assess risk, as necessary, on an ongoing basis;       
        (2) Identify the purpose of a loan and the source of repayment, and assess the ability of the borrower to repay the indebtedness in a timely manner; and       
        (3) Ensure that any claim against a member is legally enforceable.       
      (d) Credit Underwriting. A credit union shall establish and maintain prudent credit underwriting practices that:      
        (1) Are commensurate with the types of loans the credit union will make and consider the terms and conditions under which they will be made;       
        (2) Consider the nature of the markets in which loans will be made;       
        (3) Provide for consideration of the member's overall financial condition and resources, the financial responsibility of any guarantor, the nature and value of any underlying collateral, and the member's character and willingness to repay as agreed;       
        (4) Take adequate account of concentration of credit risk; and       
        (5) Are appropriate to the size of the credit union and the nature and scope of its activities.       
      (e) Loan Maturity Limit. Except when a higher maturity date is provided for elsewhere in this chapter, the maturity of any loan or extension of credit to a member may not exceed 15 years. Minimum payments, on a line of credit balance must be sufficient to amortize the outstanding balance over a reasonable period of time and not cause negative amortization.     
      (f) 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.     
      (g) 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 waiver request must contain the following:      
        (1) The requirement to be waived, the higher limit or the ratio sought;       
        (2) An explanation of the need for the waiver or to raise the limit or ratio; and       
        (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; amended to be effective November 7, 2010, 35 TexReg 9716