# COMAR Title 09 — Maryland Department of Labor

## Subtitle 03 — Commissioner of Financial Regulation

### Chapter 01 — Credit Unions

**Authority:** Business Regulation Article, §2-105; Financial Institutions Article, §2-105.1 and Title 6; Annotated Code of Maryland

**Administrative History:** Effective date: December 24, 1976 (3:24 Md. R. 1392)

**Administrative History:** Regulations .01—.07 repealed effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulations .08—.13 adopted as an emergency provision effective July 19, 1988 (15:18 Md. R. 2143); emergency status extended at 15:27 Md. R. 3123

**Administrative History:** Regulations .08—.18 adopted effective August 6, 1990 (17:15 Md. R. 1855)

**Administrative History:** Regulation .08B amended effective October 6, 1997 (24:20 Md. R. 1403)

**Administrative History:** Regulation .08 repealed and new Regulation .08 adopted effective November 2, 1998 (25:22 Md. R. 1652)

**Administrative History:** Regulation .08 amended effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulation .09 repealed effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulation .10 repealed and new Regulation .10 adopted effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulation .12 repealed effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulation .13 repealed effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulation .14 repealed and new Regulation .14 adopted effective October 1, 2001 (28:19 Md. R. 1683)

**Administrative History:** Regulation .14 amended effective April 29, 2002 (29:8 Md. R. 697)

**Administrative History:** Regulation .17 repealed effective June 16, 1997 (24:12 Md. R. 863)

**Administrative History:** Regulation .17 adopted effective December 26, 2011 (38:26 Md. R. 1696)

**Administrative History:** Regulation .18 repealed effective October 1, 2001 (28:19 Md. R. 1683)

#### Regulation .01—.07 Repealed.

*COMAR 09.03.01.01—.07*

#### Regulation .08 Real Estate Lending.

*COMAR 09.03.01.08*

A. Definitions.

  (1) “Appraisal” means an objective estimate of value established using a real estate appraisal policy approved by the board of directors in accordance with all applicable federal and State laws and regulations and in conformity with secondary market guidelines including but not limited to the Federal National Mortgage Association (FNMA) and/or Federal Home Loan Mortgage Corporation (FHLMC).

  (2) “Appraiser” means an individual who performs appraisals under the authority of real estate appraisal policies and procedures approved by the Commissioner of Financial Regulation under Financial Institutions Article, §2-110, Annotated Code of Maryland.

  (3) “Construction mortgage” means an interim loan covering residential construction and development costs in which funds are advanced at specific stages of construction with a portion held back until completion of the project.

  (4) “Escrow account” means either a special limited-withdrawal share account or an accounts payable account used for the accumulation of funds to pay for not more than 1 year's taxes, ground rent, assessments, insurance premiums, or other charges that could affect the credit union's lien position.

  (5) “Flood insurance” means insurance affording protection against loss or damage from flood and other hazards covered by a standard mortgage clause in favor of the credit union and subsequent purchasers of the mortgage.

  (6) “Hazard insurance” means property insurance affording protection against loss or damage from fire and other hazards covered by a standard extended coverage endorsement with a standard mortgage clause in favor of the credit union and subsequent purchasers of the mortgage.

  (7) “Insured or guaranteed loan” means a loan that is fully or partially insured or guaranteed by the federal government, State government, local government, or any agency of these governments.

  (8) “Lender's title insurance” means insurance that protects:

    (a) The credit union against loss due to clouds or defects in title to real property in an amount equal to the current principal balance of the loan; and

    (b) Subsequent purchasers of the mortgage or deed of trust.

  (9) “Market value” means the highest price that real property will bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller acting in a prudent and knowledgeable manner, and assuming the price is not affected by undue stimulus.

  (10) “Net worth” means retained earnings as defined under generally accepted accounting principles. Retained earnings include, but are not limited to, undivided earnings, regular reserves, and any other appropriations designated by management or the Commissioner.

  (11) “Permanent financing” means a longer-term mortgage loan greater than 10 years in maturity and covering development costs, construction costs, legal expenses, and other related costs. Permanent financing is also known as a take-out loan for a construction loan.

  (12) “Principal residence” means a structure where the owner will be domiciled or will reside permanently within the time period established by the applicable federal loan programs or within 60 days after initial disbursement of the loan.

  (13) “Private mortgage insurance” means mortgage insurance that is purchased for conventional loans on that amount of the loan that is in excess of 80 percent loan to value.

  (14) Purchase Money Mortgage.

    (a) “Purchase money mortgage” means the acquisition of property through the use of a first mortgage or first deed of trust.

    (b) “Purchase money mortgage” does not include refinances or seasoned loans.

  (15) “Refinance—cash out” means the repayment of an existing mortgage debt from the proceeds of a new mortgage that has the same borrower and the same security property, which:

    (a) Is settled in accordance with existing underwriting guidelines; and

    (b) May include:

      (i) The unpaid principal balance of the existing first mortgage,

      (ii) Closing costs,

      (iii) Points,

      (iv) The amount required to satisfy any outstanding subordinate mortgage liens, and

      (v) Additional cash that the borrower may use for any purpose.

  (16) “Refinance—no cash out” means the repayment of an existing mortgage debt from the proceeds of a new mortgage that has the same borrower and the same security property, which:

    (a) Is settled in accordance with existing underwriting guidelines; and

    (b) May include:

      (i) The unpaid principal balance of the existing first mortgage,

      (ii) Closing cost,

      (iii) Points, and

      (iv) The amount required to satisfy any outstanding subordinate mortgage liens.

  (17) Residential Real Property.

    (a) “Residential real property” means a structure designed for residential use by not more than four families, at least one unit of which shall be occupied by the owner of the structure.

    (b) “Residential real property” includes a one- to four-family unit in a planned unit development or condominium project where certain portions of the secured property are owned in common with others.

    (c) “Residential real property” does not include a unit in a cooperative project.

  (18) “Secondary mortgage loan market” means a nationally recognized market, the most common of which has been created by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), where first mortgages are securitized or sold, or both, separately to investors.

  (19) “Secondary residence” means one structure in addition to a principal residence:

    (a) Where the owner resides for at least 2 weeks every calendar year; or

    (b) Which the owner will not rent to others for at least 2 weeks every calendar year.

  (20) “Security instrument” means either a deed of trust or a mortgage that constitutes a lien.

  (21) “Value” means the lower of the appraised market value or the purchase price.

B. Requirements. A credit union may make loans secured by residential real property only in accordance with a written loan policy adopted by the board of directors. The policy shall have four sections, if applicable, as follows:

  (1) General real estate lending policy;

  (2) Purchase money mortgages, refinances;

  (3) Construction ,mortgage—permanent financing;

  (4) Second mortgages, home equity loans/lines of credit; and

  (5) Nonconforming real estate loans.

C. General Real Estate Lending Policy Section.

  (1) The general real estate lending policy section shall, at a minimum, address the following:

    (a) Types of real estate loans to be offered, for example:

      (i) Purchase money mortgages, refinances—cash out, or refinances—no cash out with fixed or adjustable rates;

      (ii) Second mortgages, home equity loans/lines of credit, open-end, closed-end with fixed or adjustable rates;

      (iii) Nonconforming real estate loans; and

      (iv) Construction mortgages;

    (b) The Maryland lending statute under which each type of loan is written;

    (c) Total real estate lending limits determined by the board of directors, which:

      (i) Do not exceed the lesser of 30 percent of total credit union assets that can be invested in real estate loans, or four times total credit union capital that can be invested in real estate loans, and

      (ii) May not be exceeded unless approved in writing by the Commissioner;

    (d) The credit union's market area for real estate loans;

    (e) The terms and pricing of real estate loans;

    (f) The qualifications and experience needed by personnel involved in making real estate loans;

    (g) Monitoring and quality control standards and procedures that address the loan portfolio, collateral, and interest rate risk;

    (h) Any requirement that a borrower contribute funds to an escrow account maintained in the credit union for accumulation of funds to pay real estate taxes, hazard insurance, ground rents, flood insurance, PMI, and any other similar expense items;

    (i) Any requirement that a borrower have hazard insurance, as permitted by the Commercial Law Article, Annotated Code of Maryland, and with the following provisions:

      (i) The hazard insurance company may be chosen by the borrower, and

      (ii) The credit union should be listed as the loss payee on the insurance policy;

    (j) Any requirement that a borrower provide a termite inspection on the improvements of the real property;

    (k) Any requirement that a borrower provide a perc test if the real property has a septic tank system;

    (l) Any requirement that a borrower provide a chemical/bacteriological and yield test if the property has a well water system;

    (m) Any requirement that a borrower provide a survey of the real property; and

    (n) Provisions that notify loan officers of the requirements of §C(2)—(6) of this regulation.

  (2) The loan application, security instrument, and note, if a deed of trust is used, shall be executed on the most current version of the Federal Housing Administration (FHA), Veterans' Administration (VA), Federal Home Loan Mortgage Corporation (FHLMC), or Federal National Mortgage Association (FNMA) standard forms or uniform instruments for the jurisdiction in which the property is located. If FHA, VA, FHLMC, or FNMA uniform instruments do not exist, the credit union shall have on file a current attorney's opinion stating that the forms in use meet the requirements of applicable federal, State, and local law.

  (3) The loan shall be:

    (a) Secured by a properly executed and recorded mortgage or deed of trust on real property naming the credit union as the secured party or beneficiary; and

    (b) If a deed of trust is used, supported by a properly executed promissory note.

  (4) A credit union shall comply with all requirements of the Flood Disaster Protection Act.

  (5) A credit union shall require that real estate loans in excess of $100,000 have an appraisal prepared and signed by the appraiser before the date of the approval of the loan. In the case of an insured or guaranteed loan, the appraisal form shall comply with the requirements of the insuring or guaranteeing agency. All negative comments by the appraiser shall be explained or reflect financial adjustments, or both.

  (6) Appraisal Guidelines.

    (a) In accordance with Financial Institutions Article, §2-110, Annotated Code of Maryland, the credit union shall have on file with the Commissioner an approved real estate appraisal policy and procedure which includes the following appraisal guidelines:

      (i) The appraiser may not have a financial interest in the real estate being appraised;

      (ii) The appraiser shall be independent of influence from the credit union, the borrower, the seller, or any other related third party; and

      (iii) The appraiser shall have demonstrated experience in appraising property similar in type and value to the real property that is being considered for the loan.

    (b) The credit union shall maintain evidence of the appraiser's professional certification, license, or any other recognized measure of competence in their field.

D. Purchase Money Mortgages, Refinances Policy.

  (1) The purchase money mortgages, refinances policy section shall, at a minimum, address the following:

    (a) A policy statement adopted by the board of directors that all purchase money mortgages will be underwritten to be sold on the secondary market if liquidity conditions or the interest rate risk exposure to the credit union makes the sale necessary;

    (b) A description of the loan products offered, for example, purchase money mortgages, refinances—cash out, and refinances—no cash out;

    (c) A statement that any loan made under this section of the written loan policy shall be a loan to finance the purchase of a principal residence or secondary residence by a borrower or to refinance an existing mortgage or deed of trust by a borrower;

    (d) A requirement that loan maturities may not exceed 30 years;

    (e) The requirements for and the release of private mortgage insurance;

    (f) Underwriting guidelines that are consistent with nationally recognized secondary mortgage market standards such as the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC); and

    (g) Provisions notifying loan officers of the requirements of §D(2)—(5) of this regulation.

  (2) A loan, including an adjustable rate loan, shall be amortized by substantially equal installments sufficient to retire the loan at maturity except when allowed by law. Installments shall be payable at least monthly.

  (3) A loan made under this section of the real estate policy may not exceed 80 percent of the appraised value of the property securing the loan at the time of disbursement, except that:

    (a) An insured or guaranteed loan may equal the maximum amount acceptable to the insuring or guaranteeing agency;

    (b) The loan amount may equal up to 95 percent of the value of the property if private mortgage insurance is obtained for the amount of the loan in excess of 80 percent of the value;

    (c) A loan made in accordance with any Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), federal, State, county, or municipal program may equal the maximum loan-to-value amount acceptable under the program and shall be originated to be sold in the secondary market without recourse or with recourse if the program permits.

  (4) A credit union shall require that a borrower provide an opinion or certificate of title signed by an attorney licensed to practice in the jurisdiction in which the property is located, or a lender's title insurance policy affirming the quality and position of the lien.

  (5) Loan Documentation. A loan file shall be maintained for each loan, and, at a minimum, contain all of the following:

    (a) A loan application supported by an executed sales contract, or other applicable documents and any modifications, bearing the signature or signatures of principal parties to the transaction;

    (b) A written appraisal, if required, prepared and signed by the appraiser before the date of the approval of the loan;

    (c) In the case of an insured or guaranteed loan, an appraisal form which complies with the requirements of the insuring or guaranteeing agency;

    (d) When applicable, a private mortgage insurance certificate or documentation that the loan is insured or guaranteed;

    (e) When applicable, a complete settlement statement (Form HUD-1 or HUD-1A) detailing all charges and fees and distribution of the loan proceeds;

    (f) An opinion or certificate of title signed by an attorney licensed to practice in the jurisdiction in which the property is located, or a lender's title insurance policy affirming the quality and position of the lien;

    (g) A current hazard insurance policy;

    (h) A current flood insurance policy, if required;

    (i) A properly executed security instrument and note, if a deed of trust is used, and a document indicating the date or dates and place or places of recording of the instruments;

    (j) When applicable, evidence of compliance with the Federal Truth in Lending Act, 15 U.S.C. §1601 et seq., which is incorporated by reference;

    (k) When applicable, disclosure required by the Real Estate Settlement Procedures Act, 12 U.S.C. §2601 et seq., which is incorporated by reference;

    (l) Any and all other required loan documents including but not limited to credit documentation, verifications, surveys, and appraisals.

E. Construction Mortgage—Permanent Financing. The construction mortgage—permanent financing loan policy section shall, at a minimum, address the following:

  (1) The maturity of the construction loan may not exceed 2 years unless a time extension is granted in writing by the credit union for unusual circumstances;

  (2) The credit union may collect interest-only payments during the term of the construction loan;

  (3) The loan-to-value ratio for construction mortgages may not exceed 95 percent;

  (4) The appraisal requirements for construction loans are the same as those in §C(5) and (6) of this regulation;

  (5) The construction mortgage agreement with the borrower shall contain, at a minimum, the following provisions:

    (a) A detailed description of the various stages at which funds will be disbursed and the inspection requirements for each stage;

    (b) A requirement that the final draw for the construction loan may not be made until the final use and occupancy permit from the appropriate local jurisdiction is obtained; and

    (c) A requirement that before the construction loan is granted, all required building permits, perc tests, wetland determinations, surveys, and other required documents shall be completed;

  (6) If the construction loan amount is greater than $150,000, the borrower shall purchase a performance bond to ensure the contractor fulfills the contractor's obligations;

  (7) If applicable, when the permanent financing pays off the construction mortgage, all applicable provisions of §D of this regulation shall apply to the purchase money mortgage; and

  (8) If applicable, provisions for permanent financing shall be addressed.

F. Second Mortgage, Home Equity Loan/Line of Credit Policy.

  (1) The second mortgage, home equity loan/line of credit policy section shall, at a minimum, address the following:

    (a) A description of the various loan products offered, for example, second mortgages, and home equity lines of credit;

    (b) Underwriting guidelines that are consistent with prudent loan underwriting standards for second mortgages and home equity lines of credit or secondary market conditions as they may exist; and

    (c) Provisions that notify loan officers of the requirements of §F(2)—(6) of this regulation.

  (2) Any loan made under this section shall be secured by the borrower's principal residence or secondary residence.

  (3) Loan maturities may not exceed 30 years in the case of home equity loan/lines of credit with a draw period. The payback period may not exceed 20 years.

  (4) A loan, including an adjustable rate loan shall be amortized by substantially equal installments sufficient to retire the loan at maturity except when allowed by law. Installments shall be payable at least monthly.

  (5) A loan made under this section of the real estate policy may not exceed 105 percent of the appraised value of the property securing the loan at the time of disbursement.

  (6) A credit union shall require a written bring-to-date title opinion or certificate of title signed by an attorney licensed to practice in the jurisdiction in which the property is located, or a lender's title insurance policy affirming the quality and position of the lien.

G. Nonconforming Real Estate Loan Policy.

  (1) The nonconforming real estate loan policy section shall, at a minimum, address the following:

    (a) A description of what constitutes the various loan products offered, for example, first mortgages, second mortgages, and home equity loans/lines of credit, which may be any of the following:

      (i) Purchase money mortgages that do not conform to secondary mortgage market standards,

      (ii) Purchase money mortgages that exceed secondary mortgage market requirements for debt ratios, property requirements, etc.,

      (iii) Second mortgages to borrowers who are rolling over unsecured debt into secured debt under a board of directors/credit committee approved work-out situation;

    (b) A methodology to segregate this category of real estate loans from the regular mortgage loan portfolio so that effective monitoring can be achieved that recognizes the higher risks associated with this type of loan;

    (c) Underwriting guidelines that are consistent prudent loan underwriting standards; and

    (d) Provisions that notify loan officers of the requirements of §G(2)—(7) of this regulation.

  (2) The nonconforming loan policy shall limit nonconforming loans to not more than 10 percent of the total real estate loan limit as described in §C(1)(c) of this regulation.

  (3) A loan made under this section of the approved written loan policy shall be a loan secured by the borrower's principal residence or secondary residence.

  (4) Loan maturities may not exceed 30 years.

  (5) A loan, including an adjustable rate loan, shall be amortized by substantially equal installments sufficient to retire the loan at maturity except when allowed by law. Installments shall be payable monthly or more frequently.

  (6) A loan made under this section of the real estate loan policy may not exceed 100 percent of the appraised value of the property securing the loan at the time of disbursement unless the purpose of the loan is to secure existing unsecured debt with the credit union and no cash out is given in the transaction.

  (7) A credit union shall require a bring-to-date title opinion or certificate of title signed by an attorney licensed to practice in the jurisdiction in which the property is located, or a lender's title insurance policy affirming the quality and position of the lien.

H. Any violation of this regulation, or any lending practices that may be considered unsafe or unsound at the discretion of the Commissioner, may result in the termination or restriction of the credit union's real estate lending policy.

#### Regulation .09 Repealed.

*COMAR 09.03.01.09*

#### Regulation .10 Investments.

*COMAR 09.03.01.10*

A. In this regulation, the following terms have the meanings indicated.

B. Terms Defined.

  (1) “Adjusted trading” means any method or transaction used to defer a loss whereby a credit union sells a security to a vendor at a price above its current market price, and simultaneously purchases or commits to purchase from the vendor another security at a price above its current market price.

  (2) Options or Futures Contracts.

    (a) “Option or futures contracts” means commitment to either buy or sell a security, on or before a future date, at a predetermined price.

    (b) “Option or future contract” does not include the subscription for the purchase of initial offering of an investment permitted by Financial Institutions Article §6-705, Annotated Code of Maryland.

  (3) “Short sale” means the sale of a security not owned by the seller.

C. A credit union may not engage in adjusted trading.

D. A credit union may not invest in options or futures contracts or engage in short sales.

#### Regulation .11 Accounting Procedures and Records Retention.

*COMAR 09.03.01.11*

A. A credit union shall maintain books and financial records that:

  (1) Accurately and fully reflect the fiscal affairs of the credit union; and

  (2) Are sufficient to enable an independent certified public accountant to perform a complete audit of the credit union.

B. A credit union shall maintain at least the following types of financial records:

  (1) Cash receipts journal;

  (2) Cash disbursements journal;

  (3) General ledger;

  (4) Manual or automated ledger or card system for all share or deposit accounts, or both;

  (5) Manual or automated loan ledger or card system;

  (6) Income account ledger;

  (7) Expense account ledger;

  (8) Checkbook, cancelled checks, deposit receipts, bank statements, and bank reconciliations, or micro-reduced copies of them; and

  (9) Any other records required to be kept by the corporation under Corporations and Associations Article, §2-111, Annotated Code of Maryland.

C. A credit union shall use the double entry accounting system.

D. A credit union shall ensure that its books and records are protected against destruction by fire or other calamity.

E. A credit union may use computer-stored financial data to keep its books and records, if it maintains an adequate off-premises back-up data file for use in the event of system failure resulting in destruction of the primary data file.

F. A credit union:

  (1) Shall promptly post entries in its books and records;

  (2) Shall balance its books and records at least quarterly;

  (3) May use machine posting of its books and records, if settlement or summary sheets are supported with machine tapes and all other necessary information; and

  (4) May use a journal voucher system if the vouchers are numbered sequentially and retained as required by §G of this regulation.

G. A credit union shall retain all of its accounting records, tapes, trial balances, books, ledgers, audits, share and deposit account records, and supporting documentation for a minimum of 5 years.

H. Credit unions shall use the accounting procedures contained in the “Standardized Accounting Manual for State Chartered Credit Unions”, which is incorporated by reference. This manual is published by the National Association of Credit Union Supervisors.

I. Failure To Comply with this Regulation.

  (1) Upon a determination that a credit union has failed to comply with the requirements of this regulation, the Commissioner of Financial Regulation may take any of the following actions:

    (a) Order the officers of the credit union to take steps to bring the credit union into compliance;

    (b) Order immediate turnover of all existing books and records;

    (c) Suspend the treasurer, chief executive officer, comptroller, or any other person responsible for maintaining the books and records, from continuing in that capacity; and

    (d) Cause an immediate audit, examination, or investigation to be conducted at the cost of the credit union.

  (2) Before the order or suspension becomes effective, the Commissioner of Financial Regulation shall give the credit union an opportunity for a hearing.

#### Regulation .12 and .13 Repealed.

*COMAR 09.03.01.12*

#### Regulation .14 Member Business Loans.

*COMAR 09.03.01.14*

A. In this regulation, the following terms have the meanings indicated:

  (1) “Associated member” means a member with shared ownership, investment, or other pecuniary interest in a business or commercial endeavor with the borrower.

  (2) “Development or construction loan” or both means a financing arrangement for acquiring property or rights to property, including land or structures, with the intent to convert it to income-producing property such as residential housing for rental, sale, commercial use, industrial use, or a similar use.

  (2-1) “Family member” means a spouse or other family member living in the same household.

  (3) “Loan-to-value ratio or LTV” means the aggregate amount of all sums borrowed including outstanding balances plus any unfunded commitment or line of credit from all sources on an item of collateral divided by the market value of the collateral used to secure the loan.

  (4) “Member business loan” means a loan, line of credit, or letter of credit (including an unfunded commitment), the proceeds of which will be used for a commercial, corporate, other business investment property or venture, or agricultural purpose.

  (5) “Member business loan” does not include a loan or loans:

    (a) That is fully secured by a lien on a one-to-four-family dwelling that is the member's primary residence;

    (b) That is fully secured by shares or deposits in credit unions, or savings and deposits in other financial institutions;

    (c) For which a federal, state, or local political subdivision fully insures repayment, guarantees repayment, or provides an advance commitment to purchase in full;

    (d) To a member or associated member which is equal to or less than $50,000; or

    (e) Granted to a credit union by a corporate credit union.

  (6) “Net worth” means retained earnings as defined under Generally accepted accounting principles. Retained earnings include, but are not limited to, undivided earnings, regular reserves, and any other appropriations designated by management or the Commissioner.

  (7) “Senior management employee” means the chief executive officer (typically the president or treasurer/manager), the assistant chief executive officer (typically the assistant president, vice president, or assistant treasurer/manager), or the chief financial officer (typically the comptroller).

B. Requirements. A credit union may make member business loans only in accordance with the following requirements:

  (1) Written Business Loan Policy.

    (a) The board shall adopt a written business loan policy, which may be included in the credit union's overall lending policy required by Financial Institutions Article §6-605, Annotated Code of Maryland.

    (b) The board shall review the policy at least annually.

    (c) At a minimum, the policy shall address the following:

      (i) The types of business loans that will be made;

      (ii) The credit union's trade area for business loans;

      (iii) The maximum amount of credit union assets, in relation to net worth, that will be invested in business loans;

      (iv) The maximum amount of credit union assets, in relation to net worth, that will be invested in a given category or type of business loan;

      (v) The maximum amount of credit union assets, in relation to net worth, that will be loaned to any one member or group of associated members, subject to §B(4) of this regulation;

      (vi) The qualifications and experience of personnel involved in making and administering business loans, which must include at least 2 years experience in the applicable type of lending;

      (vii) The methodology used in determining the ability of the borrower to repay the loan, which shall include analysis of the balance sheet, cash flow analysis, income and expense, tax data, analysis of leveraging, and comparison with industry averages, excluding any document not generally available for a particular type of business loan if stated in the business loan policy;

      (viii) The receipt and periodic updating of financial statements, tax returns, or other documentation;

      (ix) Collateral requirements, including loan-to-value ratios, appraisal, title search and insurance requirements, steps to be taken to secure various types of collateral, and how often the value and marketability of collateral is reevaluated;

      (x) Appropriate interest rates and maturities of business loans;

      (xi) Loan monitoring, servicing, and follow-up procedures, including collection procedures;

      (xii) Guidelines for purchase and sale of member business loans and loan participations, if the credit union intends to engage in that activity; and

      (xiii) Restrictions on member business loans to officials, senior management employees, and their family members as stated in §D of this regulation.

  (2) Under §B(1)(b)(iii) of this regulation, the aggregate amount of member business loans shall be limited to the lesser of 12.25 percent of total assets or 1.75 times the credit union's net worth.

  (3) Collateral and Security Requirements.

    (a) A member business loan secured by collateral on which the credit union will have a first lien may have an LTV greater than 80 percent only if:

      (i) The value in excess of 80 percent is covered through private mortgage insurance or equivalent insurance acceptable to the credit union; or

      (ii) The loan is insured or guaranteed or subject to advance commitment to purchase by an agency of the federal government, State, or any of its political subdivisions.

    (b) A member business loan secured by collateral on which the credit union will have a second or lesser priority lien may not exceed an 80 percent LTV ratio.

    (c) A member business loan secured by collateral on which the credit union will have a first lien as well as a second or lesser priority lien may have an LTV greater than 80 percent and not greater than 95 percent, only if:

      (i) The value in excess of 80 percent is covered through private mortgage insurance or equivalent insurance acceptable to the credit union; or

      (ii) The loan is insured or guaranteed or subject to advance commitment to purchase by an agency of the federal government, State, or any of its political subdivisions.

    (d) Member business loans secured by collateral on which the credit union will have a first, second, or lesser lien may not exceed a 95 percent LTV ratio.

  (4) Loans to One Borrower.

    (a) The aggregate amount of outstanding member business loans, including any unfunded commitments, to any one member or group of associated members may not exceed the greater of:

      (i) 15 percent of the credit union's net worth; or

      (ii) $100,000.

    (b) If a portion of a member business loan is fully secured by a one-to-four-family dwelling that is the member's primary residence, by shares in the credit union, by savings or deposits in another financial institution, or is subject to an advance commitment to purchase by an agency of the federal government or of a state or any of its political subdivisions, that portion may not be taken into account in determining the 15 percent limit.

    (c) The Commissioner may grant a higher limit upon written request by the credit union as described in §F(2) of this regulation.

  (5) Development and Construction Loans.

    (a) Loans made for the purpose of development or construction or both are subject to the following additional requirements:

      (i) The aggregate amount of all development or construction loans or both may not exceed 15 percent of net worth;

      (ii) The borrower shall have a minimum of 30 percent equity interest in the project being financed if the loan is for land development;

      (iii) The borrower must have a minimum of 25 percent equity interest in the project being financed if the loan is for construction or for a combination of development and construction; and

      (iv) The funds for the project may be released only after on-site, written inspections by qualified personnel and according to a preapproved draw schedule and any other conditions as set forth in the loan documents.

    (b) The Commissioner may grant a higher limit upon written request by the credit union as described in §F(2) of this regulation.

  (6) Prohibition of Member Business Lending. A credit union may not make a member business loan if its net worth is less than 7 percent or its CAMEL composite rating is 4 or 5.

C. Classification of Problem Business Loans.

  (1) Business Loan Categories.

    (a) A business loan may be classified by credit union management or the Commissioner into one or more of the categories described in this subsection upon a regular review.

    (b) Substandard. A loan classified as substandard is inadequately protected by the current sound worth and paying capacity of the obligor or the value of any collateral pledged. Loans classified as substandard have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the credit union will sustain some loss if the weaknesses are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard.

    (c) Doubtful. A loan classified as doubtful has all the weaknesses inherent in a substandard loan, with the added characteristic that the weaknesses make collection or liquidation in full highly improbable, on the basis of currently existing facts, conditions, and values. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may strengthen the loan, its classification as an estimated loss may be deferred or limited until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation actions, capital injection, perfecting liens on additional collateral, and refinancing plans.

    (d) Loss. A loan classified as loss is considered uncollectable and of such little value that its continuance as a loan on the books of a credit union is not warranted. This classification does not necessarily mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset even though partial recovery may occur in the future.

  (2) Allowance for Loan Losses.

    (a) The determination whether a member business loan will be classified as substandard, doubtful, or loss for purposes of the valuation allowance for loan losses, will be based on factors not limited to the delinquency of the loan, including, but not limited to, the adequacy of analysis and documentation.

    (b) An allowance for loan losses shall be maintained for the specified classified loans as follows:

      (i) Loss loans at 100 percent of outstanding balance;

      (ii) Doubtful loans at 50 percent of outstanding balance; and

      (iii) Substandard loans at 10 percent of outstanding balance unless other factors (for example, history of these loans at the credit union) indicate a greater or lesser amount is appropriate.

D. Restrictions on Member Business Loans to Officials, Senior Management Employees, and Their Family Members.

  (1) A credit union may make member business loans to officials, senior management employees, and their family members subject to the following restrictions:

    (a) The official, senior management employee, or their family member who will receive the proceeds of a member business loan may take no part in the decision-making process for approval of the loan;

    (b) All member business loans to officials, senior management employees, or their family members that, when added to the aggregate of all other credit union loans for which the official, senior management employee, or their family member is a debtor, guarantor, endorser, or cosigner, are in excess of $25,000 shall be approved by the board; and

    (c) The rates, terms, and conditions for any member business loan for which an official, senior management employee, or their family member is a debtor, guarantor, endorser, or cosigner may not be more favorable than the rates, terms, and conditions for a comparable loan to another member of the credit union.

  (2) Equity Agreements/Joint Ventures. A credit union may not grant a member business loan if a portion of the amount of income to be received by the credit union, officials, senior management employees, or their family members is tied to the profit or sale of the business or commercial endeavor for which the loan is made.

E. Records Requirements. Aggregate member business loans shall be identified on the credit union's financial statements and each category of member business loan shall be separately identified in the credit union's records.

F. Waiver of Limits.

  (1) A credit union may request a waiver of certain limits as listed in this regulation as follows:

    (a) Loan-to-value ratios and requirements for collateral and security under §B(3) of this regulation;

    (b) Maximum loan amount to one borrower or associated group of borrowers under §B(4) of this regulation; and

    (c) Development or construction loan limits, or both, under §B(5) of this regulation.

  (2) Upon written request by a credit union, the Commissioner may waive the limitations listed in §F(1) of this regulation. Federally insured credit unions need the approval of the Commissioner and the Regional Director of the National Credit Union Administration. The Commissioner shall approve or deny the request within 45 calendar days of the date the complete request was received by the Commissioner. The request for waiver shall contain the following:

    (a) A copy of the business loan policy;

    (b) A statement of the higher limit sought;

    (c) An explanation of the need to raise the limit;

    (d) Documentation to support the credit union's ability to manage the activity;

    (e) An analysis of the credit union's prior experience making member business loans, including at a minimum:

      (i) The history of loan losses and loan delinquency;

      (ii) Volume and cyclical or seasonal patterns;

      (iii) Diversification;

      (iv) Concentrations of credit to one borrower or group of associated borrowers in excess of 15 percent of the credit union's net worth;

      (v) Underwriting standards and practices;

      (vi) Types of loans grouped by purpose and collateral; and

      (vii) The qualifications of personnel responsible for underwriting and administering member business loans.

  (3) If the credit union's policies or practices violate safe and sound lending principles, the Commissioner may restrict all limits as listed in this chapter or revoke the credit union's approval to make member business loans.

#### Regulation .15 Maximum Loans to a Single Member.

*COMAR 09.03.01.15*

The term “indirectly to any one member”, as used in Financial Institutions Article, §6-604, Annotated Code of Maryland, includes a loan or extension of credit made to any member who, acting directly or indirectly, individually or in concert with one or more other persons or entities, or through one or more subsidiaries:

A. Acts in a common enterprise;

B. Owns or controls any entity, or holds proxies for, or otherwise has power to vote, 10 percent or more of the voting shares, rights, or interests of any association or corporation; or

C. Controls in any manner the election or appointment of a majority of the directors of that association or corporation.

#### Regulation .16 Reports to the Commissioner of Financial Regulation.

*COMAR 09.03.01.16*

A. The Commissioner of Financial Regulation shall require, as additional reports pursuant to Financial Institutions Article, §6-404(b), Annotated Code of Maryland, that a Report of Condition be received by the Commissioner on or before:

  (1) July 30th of each year, reporting the financial condition of the credit union as of June 30th of that year; and

  (2) February 1st of each year, reporting the financial condition of the credit union as of December 31st of that year.

B. A copy of the Report of Condition due on or before February 1st may be submitted as the annual report required to be filed on or before March 31st under Financial Institutions Article, §6-404(a), Annotated Code of Maryland.

#### Regulation .17 Boards of Directors — Electronically Conducted Elections.

*COMAR 09.03.01.17*

A. In this chapter, the following terms have the meanings indicated.

B. Terms Defined.

  (1) “Electronically” means the use of one or more electronic devices.

  (2) “Electronic device” means a device having electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities and may include, but is not limited to, telephones, voice response units, computer systems, and electronic mail systems.

  (3) “Electronic notice members” means members of the credit union who have opted to receive notices or statements electronically.

  (4) “Electronic voting instruction sheet” means the specific instructions for the electronically conducted election procedure, including, but not limited to:

    (a) How to access and use the electronic voting system;

    (b) The period of time in which votes will be taken; and

    (c) A description of the opt-out method.

  (5) “Envelope” means a postage prepaid and preaddressed envelope conforming to Financial Institutions Article, §6-329(d)(2)(ii), Annotated Code of Maryland.

  (6) “Identification form” means an identification form conforming to Financial Institutions Article, §6-329(d)(2)(iii), Annotated Code of Maryland.

  (7) “Notice of ballot” means a notice that includes all information that is on the printed ballot.

  (8) “Printed ballot” means a printed ballot conforming to Financial Institutions Article, §6-329(d)(2)(i), Annotated Code of Maryland.

  (9) “Secretary” means the secretary of the credit union.

  (10) “Tellers” means the tellers of election appointed by the board of directors pursuant to Financial Institutions Article, §6-329(e), Annotated Code of Maryland.

C. Provided that the board of directors has duly authorized electronically conducted elections, a credit union may elect its directors electronically using the following procedure.

  (1) All Members. Except as provided in §C(2) of this regulation, the secretary shall mail to each member in good standing, at least 20 days before the annual meeting:

    (a) Either a printed ballot and an identification form or one printed form that represents a combined printed ballot and identification form;

    (b) An envelope; and

    (c) An electronic voting instruction sheet.

  (2) Electronic Notice Members. The secretary may electronically transmit only the notice of ballot and electronic voting instruction sheet to electronic notice members at least 20 days before the annual meeting.

  (3) Optional Electronically Conducted Voting Methods.  In addition to the procedures in §C(1) and (2) of this regulation, the board of directors may allow members to vote electronically in person at one or more locations of the credit union.  If such voting is available, the electronic voting instruction sheet shall include the relevant details concerning this process and make clear that voting at such location or locations is optional.

D. Verification of Identity.

  (1) The tellers shall verify, or cause to be verified, the identity of each voter opting to vote electronically by name, address, credit union account number and an additional verification method.

  (2) The additional verification method may include:

    (a) The use of a verification control number on a printed ballot, notice of ballot, or identification form;

    (b) The use of an unique identifier, such as date of birth or last four digits of a Social Security Number; or

    (c) Any other method that insures the integrity of the electronic voting process.

  (3) The electronic voting instruction sheet shall include a description of the verification method and explain how a member uses any verifiers when voting electronically.

E. Opt-Out Methods. The electronic voting instruction sheet shall notify the members of their right to opt-out of electronic voting.

  (1) Any member mailed a printed ballot may opt-out of electronic voting by returning the printed ballot in the envelope by the date specified on the electronic voting instruction sheet.

  (2) Any electronic notice member may opt-out of electronic voting by requesting a printed ballot from the secretary as indicated on the electronic voting instruction sheet.  Promptly upon the receipt of any such request, the secretary shall mail an envelope, printed ballot and identification form, or one printed form that represents a combined printed ballot and identification form, to the member.

F. The tellers shall test the integrity of the balloting systems at regular intervals during the election period.

G. In the event of malfunction of the electronic voting system, the board of directors may in its discretion order elections to be held by printed ballot only.  The printed ballots shall be mailed to all eligible members 20 days before the annual meeting.  The board of directors may make reasonable adjustments to the voting time frames or postpone the annual meeting when necessary, to complete the elections before the annual meeting.