[Federal Register Volume 63, Number 247 (Thursday, December 24, 1998)]
[Rules and Regulations]
[Pages 71213-71214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33945]


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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: Final rule.

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SUMMARY: The NCUA is incorporating 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.

EFFECTIVE DATE: January 25, 1999.

ADDRESSES: National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.

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:

A. Background

    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 NCUA 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). 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, at 63 FR 
41978 (August 6, 1998), the NCUA Board proposed to add a new paragraph 
to Sec. 701.21(g) that incorporated 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 was, for all practical purposes, identical to the policy set 
forth in IRPS 85-3.

B. Comments

    Five comments were received. Comments were received from one 
federal credit union, two state leagues, one national credit union 
trade association, and one bank trade association. Except for the bank 
trade association, the commenters strongly supported the proposal.
    The preamble to the proposed rule, just as IRPS 85-3, stated that a 
federal credit union cannot grant an assumption of a loan to a 
nonmember if the underlying intent of the original loan to

[[Page 71214]]

the member was to grant an assumption by a nonmember immediately or 
soon after making the original loan. One commenter stated that 
``intent'' is an elusive standard and requested that NCUA provide 
further guidance in the preamble to the final regulation as to how 
examiners will construct a showing that a loan was originally granted 
with the intention that it would be assumed by a nonmember. Intent to 
conduct such a sham transaction is difficult to define. The question of 
whether there was an improper intent will depend on the facts in a 
particular case. An example of a suspicious transaction would be one in 
which a member receives a real estate loan from the credit union and 
within a short period of time, contracts to sell the property to a 
nonmember who wants to assume the loan. Although there may be a 
legitimate reason for this action, NCUA will review the transaction to 
ensure that it was not done to circumvent the restrictions on providing 
services to nonmembers.
    One commenter requested that NCUA extend the assumption of a loan 
by a nonmember to automobile loans when the individual who is assuming 
the loan is either the co-signer or co-owner of the automobile. The 
NCUA Board does not believe this authority should be extended in this 
situation since the practice and process of assuming real estate loans 
is fundamentally different in complexity, maturity, and value than a 
situation involving automobile loans. In addition, the NCUA Board does 
not see a great need for extending this assumption authority to 
automobile loans.

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 final amendment 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 final amendment does 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 final amendment only applies to federal 
credit unions. NCUA has determined that the final amendment does not 
constitute a significant regulatory action for the purposes of the 
Executive Order.

Congressional Review

    The Office of Management and Budget has determined that this is not 
a major rule.

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 December 
17, 1998.
Becky Baker,
Secretary of the Board.

    For the reasons set forth in the preamble, 12 CFR Part 701 is 
amended as follows:

PART 701--ORGANIZATION AND OPERATIONS 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.

    2. Section 701.21 is amended by adding a new paragraph (g)(7) to 
read as follows:


Sec. 701.21  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. 98-33945 Filed 12-23-98; 8:45 am]
BILLING CODE 7535-01-U