[Federal Register Volume 70, Number 36 (Thursday, February 24, 2005)]
[Rules and Regulations]
[Pages 8921-8923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3477]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Loans to Members and Lines of Credit to Members

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is amending three subsections of its lending rule and 
this final rule clarifies: the conditions for applying the rule to 
loans secured by mobile homes, recreational vehicles, house trailers 
and boats; that loans secured by manufactured homes may be considered 
residential real estate loans; and that loans with a partial government 
guarantee, insurance, or advance commitment to purchase a portion of a 
loan fall within the rule. The changes incorporate legal 
interpretations previously issued by its Office of General Counsel 
(OGC) regarding permissible maturities for certain types of loans and 
the effect of partial government guarantees. The NCUA Board is making 
these changes because it believes it is helpful to federal credit 
unions (FCUs) and others that may consult NCUA regulations to 
incorporate these interpretations as part of the rule itself rather 
than having them stated separately in OGC legal opinions.

DATES: Effective Date: This rule is effective March 28, 2005.

FOR FURTHER INFORMATION CONTACT: Dianne M. Salva, Staff Attorney, 
Division of Operations, Office of General Counsel, at the above address 
or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    The Federal Credit Union Act (the FCU Act) generally limits an 
FCU's authority on matters of loan maturity, rates of interest, 
security and prepayment penalties. 12 U.S.C. 1757(5). As permitted 
under the FCU Act, the NCUA Board (the Board) has promulgated lending 
regulations allowing loan maturities of 20 years for mobile home loans 
and up to 40 years, or more with specific Board approval, on 
residential real estate loans. 12 CFR 701.21(f) and (g). NCUA's lending 
regulations also address loans secured by a state or federal government 
insurance or guarantee. 12 CFR 701.21(e). The OGC had recently issued 
several legal opinions addressing loan guarantees and loan maturities. 
In the course of the agency's annual review of regulations, the Board 
determined that the rules on loan guarantees and maturities should be 
updated to reflect the OGC opinions. Accordingly, on November 18, 2004, 
the Board issued a proposal to amend the lending regulations to 
incorporate the recent OGC opinions. 69 FR 68829, Nov. 26, 2004.

[[Page 8922]]

Summary of Comments

    NCUA received eleven comments: five from state credit union 
leagues, two from national credit union trade organizations, three from 
individual credit unions, and one from a banking trade association. The 
comments were generally positive and supported the proposal to amend 
the regulation.
    All of the comments that specifically addressed the proposed 
changes to Sec.  701.21(e) of the rule regarding loan guarantees were 
favorable and supported the change. The final amendment to the rule, 
which is unchanged from the proposed, clarifies that a partial 
government guarantee, insurance, or commitment to purchase a loan is 
sufficient to effect the application of the regulation.
    The majority of comments supported the proposed changes to Sec.  
701.21(f) and (g) regarding loan maturities for mobile homes, 
recreational vehicles and boats, and loan maturities for manufactured 
homes.
    The banking trade association opposed the changes regarding loan 
maturities in whole, describing them as inconsistent with the credit 
union industry's specified mission of meeting the credit and savings 
needs of persons of modest means and arguing that they encourage unsafe 
lending practices. The Board disagrees. Rather, the Board finds that 
these amendments to the lending rule enhance an FCU's ability to meet 
the credit needs of its members. This rule allows FCUs to offer credit 
products that are more affordable to lower income members. Improvements 
in the quality and standards of construction of manufactured housing, 
for example, have resulted in increased values that may put the cost of 
shorter term loans out of the financial reach of individuals of modest 
means. The Board also disagrees that the longer maturities will 
encourage unsafe lending practices. To the contrary, as stated in the 
preamble to the proposed rule, NCUA encourages FCUs to take appropriate 
steps to ensure their liens are fully protected. Further, these changes 
to the regulation merely codify what OGC opinions have permitted for 
several years, and the Board is unaware of any evidence that the longer 
loan maturities have resulted in unsafe lending practices.
    Two commenters raised issues revealing some confusion about the 
difference between mobile homes, which may have loan maturities up to 
20 years, and manufactured homes, which are eligible for longer 
maturities. One FCU commented about a particular state law and local 
practices regarding the titling of manufactured housing as real or 
personal property, ground-leasing, and what constitutes ``permanently 
affixed,'' which, the commenter contended, could cause confusion and 
result in risks to FCUs making manufactured housing loans. In part, 
some confusion may result if the terms manufactured home and mobile 
home have a different meaning under a state law. In reviewing the FCU's 
letter, it became apparent that there may be issues under a state law 
that FCUs will need to address in their lending agreements with 
borrowers to ensure compliance with NCUA's lending regulation. One 
trade association suggested clarifying that manufactured housing that 
is not permanently affixed to the land constitutes a mobile home. The 
Board notes that, while this will generally be correct because a mobile 
home does not have to be permanently affixed to land, which is required 
for a manufactured home loan, a mobile home still must meet certain 
regulatory criteria to qualify for a maturity of up to 20 years.
    The regulation distinguishes between mobile homes and manufactured 
homes. First, in using the term ``permanently affixed'' to describe 
manufactured homes as a type of manufactured housing distinguished from 
mobile homes, the Board intends to limit long-term loans to 
manufactured homes that are intended to remain in place permanently. In 
its opinion letter on this topic, the OGC stated:

    Most significantly, we note that a manufactured home, although 
constructed at a factory and not built on-site, is designed and 
intended to be permanently affixed to the land. Unlike a mobile 
home, which is also constructed at a factory, a manufactured home is 
not intended to be moved once it has reached its ultimate 
destination.

    Legal Opinion OGC 03-0934, dated November 17, 2003. In order for a 
loan to qualify for the longer maturities of residential mortgage loans 
under Sec.  701.21(g), a manufactured home must be designed and 
intended to remain in place permanently.
    The same FCU noted above also commented about two issues regarding 
manufactured home loans discussed in the preamble to the proposed rule. 
Regarding the statement in the preamble that a manufactured home must 
qualify as real property and be titled as real property, the FCU 
contends the requirement is unnecessary and that state law and local 
titling practices could cause problems. The Board notes that, for a 
loan to be eligible for a 30-year or more maturity term, the FCU Act 
requires that it be a ``residential real estate loan.'' 12 U.S.C. 
1757(5)(A)(i) (emphasis added). Loans secured by some type of 
manufactured housing that is titled as personal property are not 
eligible for 30-year mortgages under the FCU Act but may be able to 
qualify as 20-year mobile home loans, assuming the criteria of Sec.  
701.21(f) are met. To the extent that a particular state law raises 
questions of how an FCU can ensure its loans comply with NCUA's lending 
regulation, an FCU may seek interpretive guidance from OGC.
    Second, the FCU commented about the Board's suggestion that, for 
safety and soundness reasons, FCUs engaging in long-term loans for 
manufactured homes under Sec.  701.21(g) should ensure, if the member 
is leasing the land where the manufactured home is located, that the 
term of the lease should be at least as long as the term of the loan. 
The FCU commented that this requirement is unnecessary and 
unreasonable, stating that, in practice, most manufactured housing 
communities permit leases of no longer duration than six months. First, 
the Board notes its statement in the preamble is not a regulatory 
requirement but is a statement of guidance. Second, the FCU's reference 
to a local practice of having short term leases of six months or less 
is a practice associated with mobile home parks rather than 
manufactured home locations. A manufactured home, as opposed to a 
mobile home, is designed and intended to stay in place permanently 
rather than be moved. The Board's understanding is that, in purchases 
of manufactured homes, the manufactured home is most often located on 
land the borrower already owns or is purchasing in conjunction with the 
purchase of the manufactured home. As noted in the preamble for the 
proposed rule, as a matter of safety and soundness, an FCU making a 
manufactured home loan where the land is leased should ensure that the 
lease is as long as the term of the loan. There may be some rare set of 
circumstances that would support an FCU making a 30-year loan on a 
manufactured home located on property that is leased for some lesser 
period of time. However, where the lease on land is of such a short 
duration that it places the loan security at a high risk of loss or 
waste, safety and soundness considerations would weigh against making a 
30-year or more loan.
    For these reasons, the Board has determined to adopt the proposed 
rule as a final rule with no changes.

[[Page 8923]]

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires NCUA to prepare an 
analysis to describe any significant economic impact any regulation may 
have on a substantial number of small entities. NCUA considers credit 
unions having less than ten million in assets to be small for purposes 
of RFA. Interpretive Ruling and Policy Statement (IRPS) 87-2 as amended 
by IRPS 03-2. The rule clarifies and expands the lending rules to 
incorporate recent OGC opinions. NCUA has determined and certifies that 
this rule will not have a significant economic impact on a substantial 
number of small credit unions. Accordingly, NCUA has determined that a 
Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the rule would not increase paperwork 
requirements under the Paperwork Reduction Act of 1995 and regulations 
of the Office of Management and Budget (OMB). NCUA currently has OMB 
clearance for Sec.  701.21's collection requirements (OMB No. 3133-
0139).

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. This rule applies to only federally 
chartered credit unions. NCUA has determined that the final rule does 
not constitute a ``significant regulatory action'' for purposes of the 
Executive Order.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The rule applies only to federal credit 
unions. NCUA has determined that the amendments to the rule will not 
have a substantial direct effect on the states, on the connection 
between the national government and the states, or on the distribution 
of power and responsibilities among the various levels of government. 
NCUA has determined that this rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) provides generally for congressional review of agency 
rules. A reporting requirement is triggered in instances where NCUA 
issues a final rule as defined by Section 551 of the Administrative 
Procedures Act. 5 U.S.C. 551. NCUA submitted the rule to the Office of 
Management and Budget, which has determined that it is not major for 
purposes of the Small Business Regulatory Enforcement Fairness Act of 
1996.

List of Subjects in 12 CFR Part 701

    Credit unions, loans.

    By the National Credit Union Administration Board on February 
17, 2005.
Mary Rupp,
Secretary of the Board.

0
Accordingly, the National Credit Union Administration amends 12 CFR 
part 701 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

0
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, 1789.

0
2. Amend Sec.  701.21 by revising paragraphs (e), (f) and (g)(1) to 
read as follows:


Sec.  701.21  Loans to members and lines of credit to members.

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    (e) Insured, Guaranteed and Advance Commitment Loans. A loan 
secured, in full or in part, by the insurance or guarantee of, or with 
an advance commitment to purchase the loan, in full or in part, by the 
Federal Government, a State government or any agency of either, may be 
made for the maturity and under the terms and conditions, including 
rate of interest, specified in the law, regulations or program under 
which the insurance, guarantee or commitment is provided.
    (f) 20-Year Loans. (1) Notwithstanding the general 12-year maturity 
limit on loans to members, a federal credit union may make loans with 
maturities of up to 20 years in the case of:
    (i) a loan to finance the purchase of a mobile home if the mobile 
home will be used as the member-borrower's residence and the loan is 
secured by a first lien on the mobile home, and the mobile home meets 
the requirements for the home mortgage interest deduction under the 
Internal Revenue Code,
    (ii) a second mortgage loan (or a nonpurchase money first mortgage 
loan in the case of a residence on which there is no existing first 
mortgage) if the loan is secured by a residential dwelling which is the 
residence of the member-borrower, and
    (iii) a loan to finance the repair, alteration, or improvement of a 
residential dwelling which is the residence of the member-borrower.
    (2) For purposes of this paragraph (f), mobile home may include a 
recreational vehicle, house trailer or boat.
    (g) Long-Term Mortgage Loans. (1) Authority. A federal credit union 
may make residential real estate loans to members, including loans 
secured by manufactured homes permanently affixed to the land, with 
maturities of up to 40 years, or such longer period as may be permitted 
by the NCUA Board on a case-by-case basis, subject to the conditions of 
this paragraph (g).
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[FR Doc. 05-3477 Filed 2-23-05; 8:45 am]
BILLING CODE 7535-01-U