Credit unions: Organization and operations term residential real estate loan by nonmember,
[Federal Register: December 24, 1998 (Volume 63, Number 247)]
[Rules and Regulations]
[Page 71213-71214]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24de98-3]
NATIONAL CREDIT UNION ADMINISTRATION
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
SUMMARY: The NCUA is incorporating 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.
EFFECTIVE DATE: January 25, 1999.
ADDRESSES: National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
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:
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Background
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 NCUA 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). 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, at 63 FR 41978 (August 6, 1998), the NCUA Board proposed to add a new paragraph to Sec. 701.21(g) that incorporated 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 was, for all practical purposes, identical to the policy set forth in IRPS 85-3.
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Comments
Five comments were received. Comments were received from one federal credit union, two state leagues, one national credit union trade association, and one bank trade association. Except for the bank trade association, the commenters strongly supported the proposal.
The preamble to the proposed rule, just as IRPS 85-3, stated that a federal credit union cannot grant an assumption of a loan to a nonmember if the underlying intent of the original loan to
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the member was to grant an assumption by a nonmember immediately or soon after making the original loan. One commenter stated that ``intent'' is an elusive standard and requested that NCUA provide further guidance in the preamble to the final regulation as to how examiners will construct a showing that a loan was originally granted with the intention that it would be assumed by a nonmember. Intent to conduct such a sham transaction is difficult to define. The question of whether there was an improper intent will depend on the facts in a particular case. An example of a suspicious transaction would be one in which a member receives a real estate loan from the credit union and within a short period of time, contracts to sell the property to a nonmember who wants to assume the loan. Although there may be a legitimate reason for this action, NCUA will review the transaction to ensure that it was not done to circumvent the restrictions on providing services to nonmembers.
One commenter requested that NCUA extend the assumption of a loan by a nonmember to automobile loans when the individual who is assuming the loan is either the co-signer or co-owner of the automobile. The NCUA Board does not believe this authority should be extended in this situation since the practice and process of assuming real estate loans is fundamentally different in complexity, maturity, and value than a situation involving automobile loans. In addition, the NCUA Board does not see a great need for extending this assumption authority to automobile loans.
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 final amendment 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 final amendment does 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 final amendment only applies to federal credit unions. NCUA has determined that the final amendment does not constitute a significant regulatory action for the purposes of the Executive Order.
Congressional Review
The Office of Management and Budget has determined that this is not a major rule.
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 December 17, 1998. Becky Baker, Secretary of the Board.
For the reasons set forth in the preamble, 12 CFR Part 701 is amended as follows:
PART 701--ORGANIZATION AND OPERATIONS 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.
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Section 701.21 is amended by adding a new paragraph (g)(7) to read as follows:
Sec. 701.21 Loans to members and lines of credit to members.
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(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. 98-33945Filed12-23-98; 8:45 am]
BILLING CODE 7535-01-U
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