NCUA Approves Loan Participation Rule

The NCUA’s amended and long-awaited loan participation rule was approved Thursday, June 20, at the National Credit Union Administration (NCUA) board meeting.

Northwest Credit Union Association (NWCUA) Director of Compliance David Curtis said the newly approved rule is a much better framework than the original proposed rule.

The final rule on loan participations limits loans from one originator of 100% of a credit union’s net worth. This is an increase from the proposed 25% of net worth cap. An expanded waiver process has been approved for the single-originator limit and limits to one borrower.

The rule requires credit unions to adopt a loan participation policy, use specific loan participation agreements, and provide for the ongoing monitoring of the loan participation.

The Loan Participation Policy must:

  • Establish underwriting standards for loan participations.
  • Establish a limit on the aggregate amount of loan participations that may be purchased from any one originating lender, not to exceed the greater of $5,000,000 or 100 percent of the federally insured credit union’s net worth, unless this amount is waived by the appropriate regional director, and, in the case of a federally insured, state-chartered credit union, with prior written concurrence of the appropriate state supervisory authority.
  • Establish limits on the amount of loan participations that may be purchased by each loan type, not to exceed a specified percentage of the federally insured credit union’s net worth.
  • Establish a limit on the aggregate amount of loan participations that may be purchased with respect to a single borrower, or group of associated borrowers, not to exceed 15 percent of the federally insured credit union’s net worth, unless waived by the appropriate regional director, and, in the case of a federally insured, state-chartered credit union, with prior written concurrence of the appropriate state supervisory authority.

NWCUA member credit unions that are using CU PolicyPro should expect policy #7430 to be updated to conform to the final rule before the effective date. NWCUA compliance staff will be reviewing the final rule and sending out a detailed Compliance Bulletin explaining the changes.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance, NWCUA.