Three credit union rules published – on leverage ratio, mortgage servicing purchases, subordinated debt – formally completing rulemaking

Three final rules were published Thursday – on a new capital leverage ratio, mortgage servicing assets, and treatment of subordinated debt – by the federal credit union regulator, with effective dates of Jan. 1, April 1, and Jan. 1, respectively.

The National Credit Union Administration (NCUA) Board adopted all three rules at its meeting Dec. 16; all were adopted unanimously by the three-member board.

Under the final rule implementing the complex credit union leverage ratio (CCULR) for risk-based capital – effective Jan. 1 – federally insured credit unions classified as complex (those with total assets greater than $500 million) are provided with a simplified measure of capital adequacy.

According to the Federal Register notice published Thursday, under the final rule, a complex credit union that maintains a minimum net worth ratio of 9% and that meets other qualifying criteria is eligible to opt into the CCULR framework. A complex credit union that opts into the CCULR framework need not calculate a risk-based capital ratio under the NCUA Board’s risk-based capital final rule (which also takes effect Jan. 1). A qualifying complex credit union that opts into the CCULR framework and maintains the minimum net worth ratio is considered well capitalized.

The mortgage servicing assets final rule, according to its Register notice, takes effect April 1. It will permit federal credit unions (FCUs) to purchase mortgage servicing assets (MSAs, referred to as mortgage servicing rights in the proposed rule) from other federally insured credit unions subject to certain requirements.

Under the final rule, the notice states, FCUs with a CAMEL or CAMELS composite rating of 1 or 2 and a CAMEL or CAMELS management component rating of 1 or 2 may purchase the mortgage servicing rights of loans that the FCU is otherwise empowered to grant, provided these purchases are made in accordance with the FCU’s policies and procedures that address the risk of these investments and servicing practices.

The subordinated debt rule, effective Jan. 1, is an amendment to the agency’s current rule (which was finalized a year ago, December 2020). The Register notice states that the rule amends the definition of “grandfathered secondary capital” to include any secondary capital issued to the U.S. Government or one of its subdivisions, under a secondary capital application approved before Jan. 1, 2022, irrespective of the date of issuance.

The notice states that the amendment will benefit eligible low-income credit unions (LICUs) that are either participating in the Treasury Department’s Emergency Capital Investment Program (ECIP), or other programs administered by the U.S. government that can be used to fund secondary capital, “if they do not receive the funds for such programs by December 31, 2021.”

The notice additionally states that the NCUA is also amending its subordinated debt rule by extending the expiration of regulatory capital treatment for secondary capital issuances to the later of 20 years from the date of issuance or Jan. 1, 2042.

The Complex Credit Union Leverage Ratio; Risk-Based Capital

Mortgage Servicing Assets

Subordinated Debt