Credit unions: Organization and operations term residential real estate loan by nonmember,
[Federal Register: August 6, 1998 (Volume 63, Number 151)]
[Proposed Rules]
[Page 41978-41979]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06au98-10]
NATIONAL CREDIT UNION ADMINISTRATION
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice of proposed rulemaking.
SUMMARY: The NCUA is proposing to incorporate into its regulations the agency's longstanding interpretation that federal credit unions can permit a nonmember to assume a member's long-term residential real estate loan in conjunction with the nonmember's purchase of the member's principal residence.
DATES: Comments must be received on or before October 5, 1998.
ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail or hand-deliver comments to: National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703) 518-6319. Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Staff Attorney, Division of Operations, Office of General Counsel, at the above address or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION: Since 1977, federal credit unions have had the authority to offer long-term real estate loans to finance a member's principal residence. 12 U.S.C. 1757(A)(i). NCUA's implementing regulation for this authority is set forth at 12 CFR 701.21(g).
In 1985, the NCUA Board issued Interpretive Ruling and Policy Statement 85-3 (IRPS 85-3). 50 FR 51840 (December 20, 1985). IRPS 85-3 stated that, incidental to a federal credit union's authority to make long-term real estate loans to members, a federal credit union may permit assumptions, by either members or nonmembers, under the terms and conditions specified in the loan agreement and consistent with the Federal Credit Union Act and NCUA's Regulations. The Board also stated that, in the case of a nonmember assumption, there must be no new money lent to the borrower and no extension of the original maturity date specified in the loan agreement with the member.
NCUA has a policy of periodically reviewing its regulations to ``update, clarify and simplify existing regulations and eliminate redundant and unnecessary provisions.'' IRPS 87-2, Developing and Reviewing Government Regulations. As part of its regulatory review program, NCUA reviewed its IRPS to determine their current effectiveness. As a result of that review, the NCUA Board stated that it planned to incorporate IRPS 85-3 into NCUA's Regulations. 62 FR 11773 (March 13, 1997) and 62 FR 50245 (September 25, 1997). The Board's goal is to increase regulatory effectiveness by making it easier for credit unions to locate applicable rules regarding real estate lending. Accordingly, the Board is proposing to add a new paragraph to Section 701.21(g) that will incorporate IRPS 85-3 so that this provision on nonmember assumption of loans will be in the same place with the other regulatory provisions regarding real estate lending. Although the language is slightly different, the policy set forth in the proposed amendment is, for all practical purposes, identical to the policy set forth in IRPS 85-3.
This proposal does not authorize a refinancing by a nonmember. Further, this proposal, just as IRPS 85-3, does not permit a federal credit union to grant an assumption of a loan to a nonmember if the underlying intent of the original loan to the member was to grant an assumption by a nonmember immediately or soon after making the original loan. NCUA would view such a transaction as a sham and will not permit federal credit unions to circumvent the restriction on lending to nonmembers. NCUA will review assumptions by nonmembers during the examination process. Federal credit unions engaging in such sham transactions will be subject to NCUA's administrative enforcement process.
This proposal does not require a federal credit union to permit nonmember assumption of real estate loans. A federal credit union's loan agreements can provide that a loan is immediately due and payable if the member's residence securing the loan is sold.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact any proposed regulation may have on a substantial number of small entities (primarily those under $1 million in assets). The NCUA Board has determined and certifies that the proposed amendment, if adopted, will not have a significant economic impact on a substantial number of small credit unions.
Accordingly, the Board has determined that a Regulatory Flexibility Analysis is not required.
Paperwork Reduction Act
NCUA has determined that the proposed amendments do not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its actions on state interests. The proposal only applies to federal credit unions. NCUA has determined that the proposed amendment does not constitute a significant regulatory action for the purposes of the Executive Order.
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Insurance, Mortgages, Reporting and recordkeeping requirements, Surety bonds.
By the National Credit Union Administration Board on July 30, 1998. Becky Baker, Secretary of the Board.
For the reasons set forth in the preamble, it is proposed that 12 CFR Part 701 be amended as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
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The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1787, and 1789. Section 701.6 is also authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610. Section 701.35 is also authorized by 42 U.S.C 4311-4312.
[[Page 41979]]
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Section 701.21 is amended by adding a new paragraph (g)(7) to read as follows:
Sec. 701.21(g) Loans to members and lines of credit to members.
* * * * *
(g) * * *
(7) Assumption of real estate loans by nonmembers. A federal credit union may permit a nonmember to assume a member's mortgage loan in conjunction with the nonmember's purchase of the member's principal residence, provided that the nonmember assumes only the remaining unpaid balance of the loan, the terms of the loan remain unchanged, and there is no extension of the original maturity date specified in the loan agreement with the member. An assumption is impermissible if the original loan was made with the intent of having a nonmember assume the loan. * * * * *
[FR Doc. 98-20951Filed8-5-98; 8:45 am]
BILLING CODE 7535-01-U
