[Federal Register Volume 63, Number 151 (Thursday, August 6, 1998)]
[Proposed Rules]
[Pages 41978-41979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20951]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The NCUA is proposing to incorporate 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.
DATES: Comments must be received on or before October 5, 1998.
ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail
or hand-deliver comments to: National Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703)
518-6319. Please send comments by one method only.
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: 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 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) and 62 FR 50245 (September 25, 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, the Board is proposing to add a new
paragraph to Section 701.21(g) that will incorporate 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 is, for all practical purposes,
identical to the policy set forth in IRPS 85-3.
This proposal does not authorize a refinancing by a nonmember.
Further, this proposal, just as IRPS 85-3, does not permit a federal
credit union to grant an assumption of a loan to a nonmember if the
underlying intent of the original loan to the member was to grant an
assumption by a nonmember immediately or soon after making the original
loan. NCUA would view such a transaction as a sham and will not permit
federal credit unions to circumvent the restriction on lending to
nonmembers. NCUA will review assumptions by nonmembers during the
examination process. Federal credit unions engaging in such sham
transactions will be subject to NCUA's administrative enforcement
process.
This proposal does not require a federal credit union to permit
nonmember assumption of real estate loans. A federal credit union's
loan agreements can provide that a loan is immediately due and payable
if the member's residence securing the loan is sold.
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 proposed amendment, if adopted, 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 proposed amendments do 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 proposal only applies to federal credit
unions. NCUA has determined that the proposed amendment does not
constitute a significant regulatory action for the purposes of the
Executive Order.
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 July 30,
1998.
Becky Baker,
Secretary of the Board.
For the reasons set forth in the preamble, it is proposed that 12
CFR Part 701 be amended as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. 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.
[[Page 41979]]
2. Section 701.21 is amended by adding a new paragraph (g)(7) to
read as follows:
Sec. 701.21(g) Loans to members and lines of credit to members.
* * * * *
(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. 98-20951 Filed 8-5-98; 8:45 am]
BILLING CODE 7535-01-U
