Comments sought on credit union loan maturities, loans-to-one-borrower limits

Feedback sought on loan participations, commercial loans to one borrower

The federal regulator of credit unions released and invited comments on a proposed rule Thursday that is aimed at clarifying and easing the regulatory compliance burdens associated with the agency’s lending rules.

The NCUA Board released its lending proposal for comment during its Aug. 2 open meeting.

Issued by the two-member National Credit Union Administration (NCUA) Board by unanimous vote, the proposed rule would revise one section of the regulations, 701.21(c)(4), to note all the various loan maturity limits applied to federal credit union (FCU) loans.

Additionally, the proposal would:

  • make explicit in the regulations that the maturity date for a “new loan” under generally accepted accounting principles (GAAP) is calculated from the new date of origination;
  • seek comment on whether the agency should provide longer maturity limits for 1-to-4-family real estate loans, first-lien mobile home loans, second mortgage loans and loans for the repair, alteration or improvement of the member’s residential dwelling; and
  • more clearly express the limits for loans to a single borrower or group of associated borrowers.

Maturity limits for federal credit union (FCU) loans are set generally under the Federal Credit Union Act at 15 years, but the act provides exceptions and authorizes the NCUA Board to adjust them further. Aside from the general limit, the rules provide a 40-year maturity limit on first-lien residential real estate loans (a higher limit may be approved case by case); a 20-year maturity limit on other loans related to a member’s residence, including first-lien mobile home loans, second mortgages and loans for the repair, alteration or improvement of the residence; and limits that, for loans backed or to be purchased by the federal government, a state government or any agency, meet the terms and conditions specified by law for such loans.

The proposal seeks input on whether these limits should be raised.

Regarding loans to one borrower, NCUA says it believes “providing a universal standard limit for loans to a single borrower or group of associated borrowers, in lieu of the current loan product specific standards, may help facilitate compliance and reduce regulatory burden,” and it is inviting input on this issue.

Current rules generally limit to 15% of a federally insured credit union’s net worth both commercial loans and loan participations that may be purchased with respect to a single borrower or group of associated borrowers. A waiver is available for loan participations, and an alternate limit (determined by formula) is available for commercial loans.

The board says more input is needed to determine whether a universal limit “would be beneficial and should be adopted.” To that end, the proposal seeks comments on the following:

(1) whether the NCUA should provide a single universal standard limit for commercial loans and loan participations that may be purchased with respect to a single borrower or group of associated borrowers;

(2) if so, the appropriate limit for such a standard;

(3) if not, why not; and

(4) any other issues stakeholders believe are relevant to this determination.

Commenters are asked also to take into consideration the FCU Act’s general limit on loans to a single borrower (10% of the credit union’s unimpaired capital and surplus).

The comment period will end 60 days after the proposal is published in the Federal Register.

NCUA Board Aug. 2, 2018, Open Meeting Agenda and Links

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