FCUs Get Expanded Investment Powers

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Federal credit unions were given new powers last week to invest in the broad commercial real estate market through commercial mortgage-backed securities (CMBS).

The NCUA board approved amendments to its natural-person credit union investment rule 703, which will allow all FCUs that are eligible for NCUA's Reg Flex program, amounting to about 4,800 of the 6,200 federal credit unions, to invest in commercial mortgage-backed securities under certain conditions.

The move expands FCUs powers into the popular MBS market. Those powers are currently restricted to the residential mortgage-backed market.

The rule will require that all CMBS are highly rated by one of the Wall Street rating agencies and have an underlying pool of loans consisting of more than 50 loans, with no single loan representing more than 10% of the pool.

For the first time, the new rule will also allow all FCUs to invest in equity indexed-linked options, such as those tied to the Standard & Poor's 500. This will allow those credit unions to offer new products, such as CDs, that are tied to those indeces and which have proved popular among consumers.

NCUA Chairman Dennis Dollar said the agency's investment rules have always been very conservative, but need to change. "I don't think we want to sacrifice the conservative nature of our permissible investment. However, we do want to keep up with the times," said Dollar.

Dollar said the agency also wants to encourage more credit unions to take advantage of the agency's pilot investment program through which credit unions may apply to invest in new and non-permissible instruments. To date, only a handful of CUs have applied through the three years of the pilot program.

The board last week also approved amendments to the corporate FCU bylaws, and a new rule increasing the definition of small credit unions from those under $1 million to those under $10 million for the purpose of allowing regulatory flexibility for those credit unions.

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