NCUA Loan Participation Policy Requirements Effective on Monday

The Loan Participation Rule issued by the National Credit Union Administration (NCUA) earlier this summer takes effect Monday, and credit unions should take a moment now to ensure they are meeting the requirements of the final rule.

The final rule provides that a FICU may only purchase loan participations if the seller is an eligible organization and the loan is one that the credit union is empowered to grant under applicable law and its own internal policies.

The rule requires FICUs to adopt a written loan participation policy that includes certain provisions.

In addition, the final rule establishes the requirements for FICUs to purchase loan participations. Those include adopting a written loan participation agreement, establishing the borrower’s membership in the originating FICU or one of the participating FICUs by the time the loan participation is purchased, and having/evidencing a continuing participation interest by the originating lender for the loan’s duration.

Per the NCUA final rules, loan participation policies should:

  • 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 million 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.

For NWCUA member credit unions that are accessing CU PolicyPro, Model Policy 7430 has been updated to meet the NCUA requirements.

 

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

Posted in Compliance, NCUA.