Mortgage Servicing Rights

As Enacted ( Federal Register)

Cited authorities 15

Cited in

Published date	31 December 2020
Citation	85 FR 86867
Record Number	2020-28278
Section	Proposed rules
Court	National Credit Union Administration

This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

86867

Vol. 85, No. 251

Thursday, December 31, 2020

12 CFR 703.16.

12 CFR 703.14.

12 CFR 703.2.

12 U.S.C. 1757(7), (8), (14), (15).

62 FR 32989 (June 18, 1997); 66 FR 54168,

54169 (Oct. 26, 2001); 67 FR 78996, 78997 (Dec. 27,

2002); 12 CFR 703.16(a).

For example, see 12 CFR 1024.17; 12 CFR part

1024, subpart C; 12 CFR 1026.20, .36, .40–.41.

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Parts 703 and 721

RIN 3133–AF26

Mortgage Servicing Rights

AGENCY

: National Credit Union

Administration (NCUA).

ACTION

: Proposed rule.

SUMMARY

: The NCUA Board (Board)

proposes to amend its investment

regulation to permit federal credit

unions (FCUs) to purchase mortgage

servicing rights from other federally

insured credit unions under certain

conditions. Under the proposed rule,

eligible FCUs may purchase the

mortgage servicing rights of loans that

the FCU is otherwise empowered to

grant, provided these investments are

consistent with safety and soundness

and made in accordance with the FCU’s

policies and procedures that address the

risk of these investments and servicing

practices.

DATES

: Comments must be received on

or before February 1, 2021.

ADDRESSES

: You may submit written

comments, identified by RIN 3133–

AF26, by any of the following methods

(Please send comments by one method

only):

•Federal eRulemaking Portal: http://

www.regulations.gov. Follow the

instructions for submitting comments.

•Fax: (703) 518–6319. Include

‘‘[Your Name]—Comments on Proposed

Rule: Mortgage Servicing Rights’’ in the

transmittal.

•Mail: Address to Melane Conyers-

Ausbrooks, Secretary of the Board,

National Credit Union Administration,

1775 Duke Street, Alexandria, Virginia

22314–3428.

Public Inspection: You may view all

public comments on the Federal

eRulemaking Portal at http://

www.regulations.gov as submitted,

except for those we cannot post for

technical reasons. The NCUA will not

edit or remove any identifying or

contact information from the public

comments submitted. Due to social

distancing measures in effect, the usual

opportunity to inspect paper copies of

comments in the NCUA’s law library is

not currently available. After social

distancing measures are relaxed, visitors

may make an appointment to review

paper copies by calling (703) 518–6540

or emailing OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT

: Rick

Mayfield, Senior Capital Markets

Specialist; Lou V. Pham, Senior Credit

Specialist, Office of Examination &

Insurance, or Ian Marenna, Associate

General Counsel; Chrisanthy Loizos,

Senior Trial Attorney, Office of General

Counsel, at 1775 Duke Street,

Alexandria, VA 22314 or telephone:

(703) 518–6300 or (703) 581–6540.

SUPPLEMENTARY INFORMATION

I. Background

II. Legal Authority

III. Summary of the Proposed Rule

IV. Regulatory Procedures

I. Background

Generally, when a lender originates a

mortgage loan, the lender may retain the

loan and the servicing function for the

loan in its portfolio, sell the loan along

with the mortgage servicing rights to

another party, or separate the mortgage

servicing rights (MSRs) from its

mortgage loan and transfer only the loan

or the MSRs to another party. This

proposed rulemaking focuses on the

purchase of MSRs, as assets that are

apart from their underlying mortgage

loans. The Board proposes to permit

FCUs to purchase MSRs by removing

MSRs from the list of prohibited

investments

in the Investment and

Deposit Activities Rule (investment

rule) and adding the purchase of MSRs

from other federally insured credit

unions (FICUs) to the rule’s list of

permissible investments for FCUs.

Under the investment rule, MSRs are

defined as ‘‘a contractual obligation to

perform mortgage servicing and the

right to receive compensation for

performing those services. Servicing is

the administration of a mortgage loan,

including collecting monthly payments

and fees, providing recordkeeping and

escrow functions, and, if necessary

curing defaults and foreclosing.’’

While the Federal Credit Union Act

specifies the statutory investment

powers for FCUs,

the NCUA has

adopted regulatory prohibitions against

certain investments and investment

activities on the basis of safety and

soundness concerns, including

investments in MSRs.

Mortgage servicing rights can be

derived through various processes.

Because FCUs are currently prohibited

from purchasing MSRs by regulation,

they are primarily derived when an FCU

originates a residential mortgage loan

and sells the loan to investors on the

secondary market or other purchasers

while the retaining the corresponding

servicing rights. Alternatively, and to a

lesser degree, FCUs can retain MSRs if

they later sell residential mortgage loans

that they had purchased from the

originating lender.

Mortgage loan servicers function as

intermediaries between borrowers and

owners of the mortgage loans. MSRs

entitle the servicer to receive

compensation from the owner of the

mortgage loan in return for performing

servicing activities for the underlying

mortgage loan. These servicing

functions are subject to a servicing

agreement and consumer protection

laws, as applicable.

These functions

generally include collecting monthly

payments and fees, providing

recordkeeping, and performing escrow

functions. Further, the servicer also

works with borrowers to mitigate loss

and pursues foreclosure, as authorized.

In guidance to examination staff, the

Office of the Comptroller of the

Currency describes MSRs or mortgage

servicing assets (MSAs) as ‘‘complex,

intangible assets that arise from owning

the rights to service mortgage loans that

have been securitized or sold to third-

party investors. The market value of

MSAs is affected by market supply and

demand factors. MSA values are

economically represented as the

discounted present value of estimated

future net cash flows over the life of the

underlying mortgage loans. MSAs

expose servicers to interest rate, price,

compliance, and operational risks. The

risk of changes in the fair value of MSAs

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Comptroller’s Handbook for Mortgage Banking,

version 1 Feb. 2014 at p. 67.

See Financial Accounting Standards Board

(FASB) Accounting Standards Codification (ASC)

860—Transfer and Servicing of Financial Assets.

Small servicers are exempt from numerous

requirements that apply to mortgage servicing

activities under Regulations X and Z. See, e.g. 12

CFR 1024.17; 12 CFR 1024.37–.41; 12 CFR 1026.41.

Generally, to qualify as a small servicer, a servicer

must service, together with any affiliates, 5,000 or

fewer mortgage loans, for all of which the servicer

(or an affiliate) is the creditor or assignee. See 12

CFR 1026.41(e)(4) for full definition.

Note that on April 3, 2020, NCUA and the

federal banking regulators issued the ‘‘Joint

Statement on Supervisory and Enforcement

Practices Regarding the Mortgage Servicing Rules in

Response to the COVID–19 Emergency and the

CARES Act’’ available at https://

files.consumerfinance.gov/f/documents/cfpb_

interagency-statement_mortgage-servicing-rules-

covid-19.pdf and the Consumer Financial

Protection Bureau (CFPB) issued frequently asked

questions regarding its mortgage servicing rules

related to the COVID–19 Emergency available at

https://files.consumerfinance.gov/f/documents/

cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.

See also the CFPB’s interim final rule, ‘‘Treatment

of Certain COVID–19 Related Loss Mitigation

Options,’’ 85 FR 39055 (June 30, 2020).

For example, the SCRA contains a strict

liability provision that requires a court order before

foreclosing on a mortgage during a period of

military service, and for one year after a period of

military service. 50 U.S.C. 3953.

Note the CFPB recently issued a final rule

implementing the FDCPA to address the activities

of debt collectors, as that term is defined in the

FDCPA, with a focus on debt collection

communications and related practices by debt

collectors. See 87 FR 76734 (Nov. 30, 2020).

12 CFR 701.23(e); 44 FR 27068 (May 9, 1979).

12 CFR part 721.

12 CFR 721.3(c).

66 FR 40845, 40850 (Aug. 6, 2001).

Id.; see also NCUA OGC Opinion 09–0430

(August 2009) available at https://www.ncua.gov/

regulation-supervision/legal-opinions/2009/

nonmember-loan-servicing.

67 FR 78996, 78998 (Dec. 27, 2002).

68 FR 32960 (June 3, 2003).

NCUA OGC Opinion 01–0502 (June 18, 2001)

available at https://www.ncua.gov/files/legal-

opinions/OL2001-0502.pdf; 12 CFR 721.3(b)(1).

Generally, a CUSO is an entity in which a FICU

has an ownership interest or to which a FICU has

extended a loan, and that entity is engaged

primarily in providing products or services to credit

unions or credit union members. A CUSO also

includes any entity in which a CUSO has an

ownership interest of any amount, if that entity is

engaged primarily in providing products or services

to credit unions or credit union members. See 12

CFR 712.1(d).

12 CFR 712.5(j); see also NCUA OGC Opinion

09–0349 (May 2009) available at https://

www.ncua.gov/regulation-supervision/legal-

opinions/2009/credit-union-service-organization-

cuso-purchase-and-servicing-non-performing-loans.

NCUA Call Report Data as of December 31,

2018 and December 31, 2019.

due to changes in interest rates is

normally considered interest rate risk. It

could be considered price risk, however,

if the bank is actively buying and selling

its MSAs. MSAs pose operational risk

because the servicing and valuation

functions are operations intensive and

model dependent.’’

MSRs are generally capitalized at fair

value and subsequently accounted for

using the amortization or fair value

method.

The fair value of MSRs is the

net present value, using a market-based

discount rate, of servicing revenue

components (servicing fee, float income,

ancillary income, etc.) less expenses,

adjusted for prepayment speeds.

Prepayment speeds in turn are generally

highly dependent on prevailing interest

rates. However, determining the fair

value of MSRs can be a complex

exercise given that their market prices

are generally not readily observable.

Hence, owners of MSRs typically

depend on data-driven models, whether

proprietary or purchased, and third

party expertise to help them value their

MSRs.

MSRs impact compliance and

reputation risk due to the high touch

nature of interactions with consumers

and the attendant legal requirements

imposed on mortgage servicers. For

example, depending on the amount and

types of mortgage loans serviced,

servicers must comply with a variety of

regulatory requirements that implement

the Dodd–Frank Wall Street Reform and

Consumer Protection Act of 2010,

including amendments to Regulation Z

(implementing the Truth in Lending

Act) and Regulation X (implementing

the Real Estate Settlement Procedures

Act),

as well as other applicable state

and federal laws, such as the

Servicemembers Civil Relief Act

(SCRA),

the Fair Debt Collection

Practices Act,

and Section 5 of the

Federal Trade Commission Act, which

prohibits unfair or deceptive acts or

practices. To be successful, servicers

need not only to understand

complexities in determining the value of

these assets, but should have effective

information management systems,

trained personnel, robust internal

controls, and appropriate risk

management to properly service the

loans.

Over decades, the NCUA has issued

many regulations and opinions that

have recognized the authority of an FCU

to engage in the servicing of loans in

varying contexts. Since 1979, an FCU

has been permitted ‘‘to service any

eligible obligation it purchases or sells

in whole or in part’’ under the NCUA’s

eligible obligations rule.

The

incidental powers regulation

has also

long provided that FCUs have the

authority to provide correspondent

services, including loan servicing, to

other credit unions.

In adopting that

regulation, the Board observed:

‘‘Correspondent services are services or

functions provided by an FCU to

another credit union that the FCU is

authorized to perform for its own

members or as part of its operation.’’

During the part 721 rulemaking in 2001,

the Board agreed with commenters that

loan servicing and escrow services were

examples of permitted correspondent

services.

Furthermore, although the

purchase of MSRs was to be prohibited

under the investment rule, the Board

recognized during the rulemaking that

an FCU could perform servicing for a

member engaged in making mortgage

loans as a financial service to its

member: ‘‘For this activity to be

permissible as a financial service to a

member, the member must continue to

own the loan during the time that the

credit union provides servicing. In this

context, the NCUA Board concludes that

providing mortgage servicing is an

appropriate exercise of a credit union’s

incidental powers to provide financial

service to a member.’’

Therefore, the

authority to provide mortgage loan

servicing as a financial service to

members, under the conditions above,

has been in place since 2003.

FCUs are

also permitted to provide mortgage loan

servicing to others as a charitable

contribution.

Further, under the

NCUA’s Credit Union Service

Organization (CUSO) regulation,

CUSOs

are expressly preapproved to

provide loan support services, including

loan servicing and debt collection

services.

The Board believes it is appropriate

now to remove the prohibition against

FCUs from purchasing MSRs as

permissible investments while also

maintaining safety and soundness. FCUs

have long had experience originating

and servicing residential mortgage

loans. In fact, first lien residential

mortgage loans account for over one

third of outstanding credit union loans

as of September 30, 2020, which is the

single largest loan concentration in the

system. FCUs accounted for $78 billion

of the approximately $154 billion in

first lien residential mortgage loans

originated by all FICUs in 2019.

Comparatively, FCUs accounted for $62

billion of the approximately $117

billion in first lien residential mortgage

loans originated by all FICUs in 2018.

Like many financial institutions

involved in residential lending, FCUs

engage in both origination and servicing

activities related to residential lending.

As of September 30, 2020,

approximately 3,700 FICUs held $431

billion in aggregate outstanding first lien

residential mortgage loans, with 2,166

FCUs accounting for $214 billion of the

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NCUA Call Report Data as of September 30,

2020.

NCUA Call Report Data as of September 30,

2020.

12 U.S.C. 1766(a).

12 U.S.C. 1751–1795k.

See 12 U.S.C. 1786(r) (providing: ‘‘For purposes

of [the Federal Credit Union Act], the term

‘institution-affiliated party’’ means—(1) any

committee member, director, officer, or employee

of, or agent for, an insured credit union; (2) any

consultant, joint venture partner, and any other

person as determined by the Board (by regulation

or on a case-by-case basis) who participates in the

conduct of the affairs of an insured credit union;

and (3) any independent contractor (including any

attorney, appraiser, or account) who knowingly or

recklessly participates in—(A) any violation of any

law or regulation; (B) any breach of fiduciary duty;

or (C) any unsafe or unsound practice, which

caused or is likely to cause more than a minimal

financial loss to, or a significant adverse effect on,

the insured credit union.’’).

12 U.S.C. 1786.

12 U.S.C. 1757(14).

12 U.S.C. 1757(17).

12 CFR part 721.

12 CFR 721.3(c).

12 CFR 701.23(e); 44 FR 27068 (May 9, 1979).

NCUA OGC Op. 04–0713 (Oct. 25, 2004)

available at https://www.ncua.gov/files/legal-

opinions/OL2004-0713.pdf, 76 FR 81421, 81425

(December 28, 2011).

outstanding amount.

These residential

mortgage loans are considered

‘‘portfolio’’ mortgage loans because the

FICU has not sold its loans and the

FICU (or a related CUSO) provides

mortgage servicing activities for said

loans. There are no associated MSRs

with portfolio mortgage loans from an

asset and accounting perspective, but

the responsibility to service the

mortgage loan rests with the portfolio

lender.

Credit unions, like many other

lenders involved with mortgage finance,

also actively engage in selling

residential mortgage loans to investors

on the secondary market or other

purchasers. In 2019, approximately

1,100 FICUs collectively sold $63

billion in residential mortgage loans.

Five hundred fifty-six (556) FCUs

accounted for $39 billion of the $63

billion of mortgage loans sold in 2019.

Comparatively, approximately 1,100

FICUs collectively sold $46 billion in

residential mortgage loans in 2018, with

553 FCUs accounting for $26 billion of

the total amount sold.

The NCUA began collecting data on

MSRs owned by FICUs in 2003 and has

found that the value of MSRs in the

credit union system increased from

approximately $330 million in 2004 to

$1.8 billion in 2019. During this period,

the amount of real estate loans sold

where servicing was retained increased

from $46 billion to $240 billion. As of

September 30, 2020, more than 500

FICUs owned $1.9 billion in MSRs. Of

this figure, 235 FCUs accounted for $1.1

billion in MSRs.

The Board recognizes that MSRs have

certain inherent attributes that can have

an adverse impact on an FCU’s financial

condition. Mortgage servicing rights can

carry operational risks due to a myriad

of statutes and regulations to protect

consumers, which can expose FCUs to

reputational, legal, and compliance risk.

In addition, MSRs can expose servicers

to liquidity risk as certain mortgage

loans which have been sold to investors

require the servicer to remit payments to

the investors even if borrowers do not

make the monthly mortgage loan

payments. The value of MSRs is highly

dependent on prevailing interest rates.

In a rapidly increasing or decreasing

interest rate environment, this can

introduce extreme volatility to a credit

union’s financial condition as the MSRs

are periodically valued for accounting

and reporting purposes. An FCU in poor

financial condition may not be able to

withstand the financial impact of a

significant loss due to a write-down in

the value of its MSRs.

The Board believes that FCUs have

demonstrated experience originating

and servicing residential mortgage

loans. Furthermore, although valuing

MSRs can be complex, FCUs have

sufficient access to market resources

and expertise to help them value MSRs

when purchased or retained on an

ongoing basis for accounting purposes.

For these reasons, the Board believes

removing the prohibition in the

investment rule is appropriate and

consistent with safety and soundness.

The proposed rule would provide

flexibility for FCUs to operate their

mortgage loan business and would also

provide FICUs another avenue to sell

their MSRs, which could generate a

higher selling price and keep the MSRs

within the credit union system.

II. Legal Authority

Section 120(a) of the Federal Credit

Union Act

authorizes the Board to

prescribe rules and regulations for the

administration of the statute.

addition, section 206 of the Federal

Credit Union Act provides the Board

with broad authority to take

enforcement action against a FICU or an

‘‘institution-affiliated party’’

that is

engaging or has engaged, or the Board

has reasonable cause to believe that it is

about to engage, in an unsafe or

unsound practice in conducting the

business of such credit union.

Congress chose not to define ‘‘unsafe or

unsound practices’’ in the Federal

Credit Union Act, leaving

determinations regarding which actions

are unsafe or unsound to the Board.

The Federal Credit Union Act

authorizes an FCU ‘‘to sell all or a part

of its assets to another credit union

[and] to purchase all or part of the assets

of another credit union. . . subject to

regulations of the Board.’’

Given that

MSRs are financial assets that may be

sold separately from their underlying

mortgage loans, an FCU has the

statutory authority to sell MSRs to, and

purchase MSRs from, another credit

union. Further, the Federal Credit

Union Act authorizes an FCU ‘‘to

exercise such incidental powers as shall

be necessary or requisite to enable it to

carry on effectively the business for

which it is incorporated.’’

As such,

NCUA’s incidental powers regulation

has long provided that FCUs have the

authority to provide correspondent

services, including loan servicing, to

other credit unions.

Similarly, the

eligible obligations rule allows an FCU

‘‘to service any eligible obligation it

purchases or sells in whole or in

part.’’

III. Summary of the Proposed Rule

As set out above, the Board proposes

to remove the current prohibition on

FCUs purchasing MSRs from the

investment rule. The Board is proposing

to amend § 703.14 to explicitly permit

an FCU to purchase MSRs from other

FICUs as an investment, provided: (1)

The underlying mortgage loans of the

MSRs are loans the FCU is empowered

to grant; (2) the FCU purchases the

MSRs within the limitations of the

FCU’s board of directors’ written

purchase policies; and (3) the board of

directors or investment committee

approves the purchase in advance.

To ensure that MSRs purchased by

FCUs meet the same requirements and

standards applicable to the loans that a

buying FCU can make, the proposed

rule would allow purchases of MSRs

from FICUs only if the underlying

mortgage loans from which the MSRs

are derived meet the same conditions

for loans the FCU is empowered to

grant. This is the same standard

applicable to FCUs when buying certain

eligible obligations under § 701.23(b).

The phrase ‘‘empowered to grant’’ refers

to an FCU’s authority to make the type

of loans permitted by the FCU Act,

NCUA regulations, FCU Bylaws, and an

FCU’s own internal policies.

Consistent with § 701.23, the Board is

also requiring MSRs be purchased

within the limitations of the FCU’s

board of directors’ written purchase

policies and requiring the FCU’s board

of directors or investment committee

approves the purchase in advance.

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As noted, many FCUs have considerable

experience in managing the servicing of mortgage

loans, therefore the Board is not providing the usual

60-day comment period for this proposal which

relieves a regulatory prohibition on investments in

MSRs as assets. See NCUA Interpretive Ruling and

Policy Statement (IRPS) 87–2, as amended by IRPS

03–2 and IRPS 15–1. 80 FR 57512 (Sept. 24, 2015),

available at https://www.ncua.gov/files/

publications/irps/IRPS1987-2.pdf.

12 CFR 701.23(b)(2), 703.108(a)(1).

The proposed rule necessarily

removes the current prohibition against

MSRs purchases imposed in § 703.16(a)

and reserves the paragraph to

correspond to the change in § 703.14.

The remaining provision in § 703.16(a),

which recognizes an FCU’s incidental

powers authority to service the loans

owned by a member engaged in

mortgage lending, is transferred to part

721 as another example of loan-related

product. While loan servicing is an

incidental powers activity when

performed for other credit unions under

§ 721.3(c) as a correspondent service,

the proposed addition to paragraph (h)

reflects the existing authority currently

found in § 703.16(a) to provide loan-

related services to members.

The Board invites comments on all

aspects of the proposal

and, in

addition, requests comment on the

following questions. The questions raise

issues the Board intends to incorporate

in the final rule to ensure appropriate

safeguards and limitations, and will

consider the comments and supporting

information it receives in response to

this notice.

How would the proposed rule to

permit an FCU to purchase MSRs from

other FICUs benefit an FCU’s mortgage

loan servicing operations? The Board

solicits feedback on whether the current

prohibition against FCUs purchasing

MSRs as financial assets from other

mortgage lenders has impacted the

ability of FCUs to achieve their strategic

objectives.

If FCUs purchase volumes of MSRs

from different FICUs, are they prepared

to ensure they have effective compliance

management systems for compliance

with the consumer protection-related

laws and regulations that apply to

mortgage loan servicers? FCUs manage

their exposure to compliance risk

through a comprehensive compliance

program, often referred to as a

compliance management system (CMS).

An FCU’s CMS includes policies,

procedures, processes, monitoring, and

an audit function regarding compliance

with all applicable laws and regulations,

including those that apply to mortgage

loan servicing activities. An effective

CMS promotes compliance with

consumer protection-related laws and

regulations and prevents consumer

harm. The Board solicits comment on to

what extent FCUs may need to make

appropriate adjustments to their CMS if

they expand their mortgage loan

servicing as provided under the

proposed rule, particularly to comply

with the consumer protections that

apply to the transfer and servicing of

mortgage loans, and how the NCUA can

best ensure that FCUs purchasing MSRs

do so.

Should the proposed rule include

additional criteria for an FCU to be

eligible to purchase MSRs? In particular,

should the FCU be required to be ‘‘well

capitalized’’ as defined in part 702? If

so, similarly to the eligible obligations

rule, should it be well capitalized for a

minimum of the six quarters preceding

its purchase of MSRs? Should the FCU

be required to have a composite CAMEL

rating of 1 or 2 with a Management

rating of a 1 or 2 for at least the last two

examination cycles? As detailed in this

notice, MSRs carry a variety of risks. As

such, the Board is considering certain

safeguards that would apply before an

FCU is eligible to purchase MSRs, in

order to mitigate some of these risks.

The Board is considering whether to

incorporate one of, or a combination of,

these elements in a final rule because it

has found these standards to be prudent

in other contexts, including the eligible

obligations rule and investment rule in

relation to investments in derivatives.

The Board solicits feedback on whether

these proposed standards would

mitigate risks inherent in the purchase

of MSRs and help ensure that FCUs

engage in this activity in a safe and

sound manner.

Should the final rule include a limit

on the amount of MSRs an FCU can

hold to address concentration risk?

Specifically, should a limit on the

amount of MSRs held by an FCU be

determined using the total amount of

MSRs purchased by the FCU or,

alternatively, the aggregate amount of

MSRs purchased from other parties and

MSRs retained after the sale of the

underlying mortgage loans by the FCU?

Should the rule limit the total amount

of MSRs that an FCU may hold to no

more than twenty-five percent (25%) of

the FCU’s net worth or would another

standard, such as a concentration limit

based on assets, be more appropriate to

address concentration risk? High

concentrations in a particular asset can

expose a credit union to undue risk. The

Board solicits feedback on whether a

concentration limit for MSRs would

help alleviate risks for FCUs that

purchase or originate MSRs.

To address the liquidity risk of the

purchasing FCU, should the final rule

limit the amount of months an FCU is

obligated to remit payments to the

mortgage loan owner if the borrower

fails to make payments? Specifically,

should there be a maximum of three to

six months of payments made to the

mortgage loan owner when a borrower

fails to make payment on the serviced

mortgage loan? MSRs can carry

liquidity risks if the servicer is required

under the mortgage servicing contract to

remit payments to owners of the

mortgage loans even if the servicer is

not receiving mortgage payments from

borrowers. The Board solicits feedback

on whether there should be a limit on

MSRs with certain remittance structures

to mitigate liquidity risks to FCUs that

purchase MSRs.

Finally, the Board solicits comment

on whether the safeguards and

limitations applicable to FCUs in the

final rule should be extended to all

FICUs in light of the risks associated

with the purchase of MSRs, as a

requirement for obtaining and

maintaining federal insurance.

Regulatory Procedures

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA)

generally requires that, in connection

with a notice of proposed rulemaking,

an agency prepare and make available

for public comment an initial regulatory

flexibility analysis that describes the

impact of a proposed rule on small

entities. A regulatory flexibility analysis

is not required, however, if the agency

certifies that the rule will not have a

significant economic impact on a

substantial number of small entities

(defined for purposes of the RFA to

include FICUs with assets less than

$100 million) and publishes its

certification and a short, explanatory

statement in the Federal Register

together with the rule. The proposed

rule provides additional investment

authority to FCUs that meet certain

eligibility requirements due to the

complexity and risk related to the

purchase of MSRs. As of March 31,

2020, of the 3,256 credit unions with

federal charters, only 17 FCUs with

assets of less than $100 million had

MSRs on their books. Accordingly, the

NCUA certifies that the proposed rule

will not have a significant economic

impact on a substantial number of small

credit unions.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(PRA) applies to rulemakings in which

an agency creates a new or amends

existing information collection

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86871

Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules

44 U.S.C. 3507(d); 5 CFR part 1320.

44 U.S.C. Chap. 35.

Public Law 105–277, 112 Stat. 2681 (1998).

requirements.

For the purpose of the

PRA, an information collection

requirement may take the form of a

reporting, recordkeeping, or a third-

party disclosure requirement. The

proposed rule does not contain

information collection requirements that

require approval by OMB under the

PRA.

The proposed rule provides

regulatory relief by allowing eligible

FCUs to expand their investment

authority to include the purchase of

MSRs under similar standards

applicable to the purchase of eligible

obligations and other investments.

C. Executive Order 13132

Executive Order 13132 encourages

independent regulatory agencies to

consider the impact of their actions on

state and local interests. In adherence to

fundamental federalism principles, the

NCUA, an independent regulatory

agency as defined in 44 U.S.C. 3502(5),

voluntarily complies with the executive

order. This rulemaking will not have a

substantial direct effect on the states, on

the connection between the national

government and the states, or on the

distribution of power and

responsibilities among the various

levels of government. The NCUA has

determined that this proposal does not

constitute a policy that has federalism

implications for purposes of the

executive order.

D. Assessment of Federal Regulations

and Policies on Families

The NCUA has determined that this

proposed rule will not affect family

well-being within the meaning of

Section 654 of the Treasury and General

Government Appropriations Act,

1999.

List of Subjects

12 CFR Part 703

Credit unions, Investments.

12 CFR Part 721

Credit unions, Functions, Implied

powers.

By the National Credit Union

Administration Board on December 17, 2020.

Melane Conyers-Ausbrooks,

Secretary of the Board.

For the reasons discussed above, the

NCUA Board proposes to amend 12 CFR

parts 703 and 721 as follows:

PART 703—INVESTMENT AND

DEPOSIT ACTIVITIES

■1. The authority citation for part 703

is revised to read as follows:

Authority: 12 U.S.C. 1757(7), 1757(8),

1757(14) and 1757(15).

■2. Amend § 703.14 by adding

paragraph (l) to read as follows:

§ 703.14 Permissible investments.

* * * * *

(l) Mortgage servicing rights. A

Federal credit union may purchase

mortgage servicing rights from other

federally insured credit unions as an

investment if all of the following

conditions are met:

(1) The underlying mortgage loans of

the mortgage servicing rights are loans

the Federal credit union is empowered

to grant;

(2) the Federal credit union purchases

the mortgage servicing rights within the

limitations of its board of directors’

written purchase policies; and

(3) the board of directors or

investment committee approves the

purchase.

§ 703.16 [Amended]

■2. Amend § 703.16 by removing and

reserving paragraph (a).

PART 721—INCIDENTAL POWERS

■4. The authority citation for part 721

continues to read as follows:

Authority: 12 U.S.C. 1757(17), 1766 and

1789.

■5. Amend § 721.3 paragraph (h) by

revising the last sentence to read as

follows:

§ 721.3 What categories of activities are

preapproved as incidental powers

necessary or requisite to carry on a credit

union’s business?

* * * * *

(h) * * * These products or activities

may include debt cancellation

agreements, debt suspension

agreements, letters of credit, leases, and

mortgage loan servicing functions for a

member as long as the loan is owned by

a member.

* * * * *

[FR Doc. 2020–28278 Filed 12–30–20; 8:45 am]

BILLING CODE 7535–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 300

[REG–114615–16]

RIN 1545–BP75

User Fee for Estate Tax Closing Letter

AGENCY

: Internal Revenue Service (IRS),

Treasury.

ACTION

: Notice of proposed rulemaking.

SUMMARY

: This document contains

proposed regulations establishing a new

user fee for authorized persons who

wish to request the issuance of IRS

Letter 627, also referred to as an estate

tax closing letter. The Independent

Offices Appropriations Act of 1952

authorizes charging user fees in

appropriate circumstances. The

proposed regulations affect persons who

request an estate tax closing letter.

DATES

: Written or electronic comments

and requests for a public hearing must

be received by March 1, 2021. Requests

for a public hearing must be submitted

as prescribed in the ‘‘Comments and

Requests for a Public Hearing’’ section.

ADDRESSES

: Commenters are strongly

encouraged to submit public comments

electronically. Submit electronic

submissions via the Federal

eRulemaking Portal at http://

www.regulations.gov (indicate IRS and

REG–114615–16) by following the

online instructions for submitting

comments. Once submitted to the

Federal eRulemaking Portal, comments

cannot be edited or withdrawn. The IRS

expects to have limited personnel

available to process public comments

that are submitted on paper through

mail. Until further notice, any

comments submitted on paper will be

considered to the extent practicable.

The Department of the Treasury

(Treasury Department) and the IRS will

publish for public availability any

comment submitted electronically, and

to the extent practicable on paper, to its

public docket. Send paper submissions

to: CC:PA:LPD:PR (REG–114615–16),

Room 5203, Internal Revenue Service,

P.O. Box 7604, Ben Franklin Station,

Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT

Concerning submissions of comments

and/or requests for a public hearing,

Regina Johnson, at (202) 317–5177;

concerning cost methodology, Michael

Weber, at (202) 803–9738; concerning

the proposed regulations, Juli Ro Kim, at

(202) 317–6859 (not toll-free numbers).

SUPPLEMENTARY INFORMATION

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