[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