Organization and Operations of Federal Credit Unions

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.

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(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.

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[FR Doc. 98-20951 Filed 8-5-98; 8:45 am]

BILLING CODE 7535-01-U