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NCUA Proposed Rule on Loan Participation

The NCUA Board issued a proposed rule on loan participations, a separate proposal on RegFlex, an Advance Notice of Proposed Rulemaking on emergency liquidity and adopted final technical changes to its corporate credit union rule during its December 15 board meeting. The Board also addressed other issues, including approval of its 2011-2014 Strategic Plan, its 2012 annual performance budget, and an update on the National Credit Union Share Insurance Fund. For a complete summary, click here. CUNA’s Examination and Supervision Subcommittee, along with other key CUNA groups, will review the proposals in detail. 

Proposed Rule - Loan Participations

The Board issued a 60-day comment period for a proposed regulation that would revise NCUA’s existing loan participation investment rules for all federally-insured credit unions (FICUs) that purchase participations in loans originated by other credit unions.

The proposal rule would limit loan participations involving a single originator to 25 percent of the FICU’s net worth-which limit could not be waived- and set a 15 percent of net worth limit on loans to one borrower (LTOB). The LTOB limit could be exceeded upon

approval of a waiver request by the appropriate regional director. (Credit unions with loan participation investments greater than these limits would be grandfathered temporarily until the FICU’s participation investments in excess of these limits have been paid off or sold in the ordinary course of business.) FICUs would need to set additional concentration limits for “other concentrations identified within a FICU’s loan participation policy” that are “reasonable” and “supportable” and as required by Letter to Credit Unions 10-CU-03 (Mar. 2010) and its related Supervisory Letter.

The proposed rule would include “minimum provisions that any loan participation agreement must address” such as requiring the originator to retain at least a “ten percent interest in the loan throughout its duration.” This is already a statutory requirement for federal credit unions in the Federal Credit Union Act. The proposed rule would also require additional agreement provisions including notices and disclosures regarding the ongoing financial condition of the loan and loan servicing responsibilities. 

 

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