Changes to NCUA Lending Rules

CUNA Regulatory Advocacy
March 15, 2005

The NCUA Board unanimously approved a final rule last month that will amend the lending rules to incorporate legal interpretations previously issued by NCUA’s Office of General Counsel regarding the effect of partial government guarantees and the permissible maturities for certain types of loans. The rule addresses the following: o That loans with a partial government guarantee, insurance, or advance commitment to purchase a portion of the loan are also included within the provisions of the rule that provide relief from the limits on maturities, interest rates, and penalties.

o The conditions for applying the lending rules to loans secured by mobile homes, recreational vehicles, house trailers, and boats that would qualify for the longer 20-year maturity.

o That loans secured by manufactured homes may be considered real estate loans and, therefore, qualify for the longer 40-year maturity limit.

Below is CUNA's Final Rule Analysis, which provides additional information.

EXECUTIVE SUMMARY

· The NCUA Board unanimously approved a final rule that will amend the lending rules to incorporate legal interpretations previously issued by NCUA’s Office of General Counsel (OGC) regarding the effect of partial government guarantees and the permissible maturities for certain types of loans.

· The rule addresses the following: o That loans with a partial government guarantee, insurance, or advance commitment to purchase a portion of the loan are also included within the provisions of the rule that provide relief from the limits on maturities, interest rates, and penalties. o The conditions for applying the lending rules to loans secured by mobile homes, recreational vehicles, house trailers, and boats that would qualify for the longer 20-year maturity. o That loans secured by manufactured homes may be considered real estate loans and, therefore, qualify for the longer 40-year maturity limit.

· The rule will be effective as of March 28, 2005.

If you have any questions or need a copy of the rule, please feel free to contact Senior Vice President and Associate General Counsel Mary Dunn by e-mail at mdunn@cuna.coop or by telephone at (800) 356-9655, extension 6736, or contact Senior Assistant General Counsel Jeff Bloch by e-mail at jbloch@cuna.coop or by telephone at (800) 356-9655, extension 6732. You may also access the rule on the Internet at the following address:

http://www.ncua.gov/RegulationsOpinionsLaws/RecentFinalRegs/F-701-21-e-g.pdf

BACKGROUND

The NCUA Board has a policy of continually reviewing NCUA rules to “update, clarify and simplify existing regulations and eliminating unnecessary and redundant provisions.” As a result of NCUA’s 2003 review, the Board determined that the rules on loan guarantees and loan maturities should be updated to reflect OGC opinions.

DESCRIPTION OF THE PROPOSED RULE

The NCUA Board has revised the lending rules to incorporate a number of OGC interpretations regarding loans guaranteed under state or federal loan guarantee programs, mobile homes, and manufactured homes. Here are the proposed changes: · The Federal Credit Union Act (FCUA) and the lending rules limit a federal credit unions’ authority regarding loan maturities, rates of interest, security and prepayment penalties. For loans secured by a state or federal government insurance or guarantee or in the case of a state or federal program providing an advance commitment to purchase the loan, the FCUA provides relief from these limitations and permits a federal credit union to make the loan under the terms of the government program. The final rule clarifies that a partial government guarantee, insurance, or commitment to purchase a loan will be sufficient to qualify for this relief. · Loan maturities are generally limited to no more than 12 years, except the lending rules allow loan maturities of 20 years for mobile home loans and up to 40 years (or more with Board approval) for residential mortgage loans. The final rule adopts a prior OGC interpretation that a house trailer, recreational vehicle, or a boat will be considered a mobile home if the home is owner-occupied, secured by a first lien, and qualifies for the home mortgage interest deduction under Internal Revenue Service (IRS) rules. The IRS rules generally require the home to have sleeping, cooking, and toilet facilities. A manufactured home will qualify for the longer maturities permitted for residential mortgage loans if the home is permanently affixed to the land and meets the other requirements currently outlined in the lending rules.