ALEXANDRIA, Va. — The NCUA Board unanimously approved a proposed rule that would broaden the ability of qualifying federal credit unions to securitize loans they originated.
That move was one of several during the board's monthly meeting Thursday. Board Chairman Debbie Matz said in a statement that securitization had the potential to be an effective tool for large credit unions, provided that they have the capacity and expertise to handle such transactions.
"As the credit union system becomes larger and more complex, more credit unions are developing the scale and expertise to offer sophisticated innovations," Matz said. "Securitization is complex and has the potential to tap new sources of liquidity and mitigate interest rate risk. However, it would also create an additional layer of risk. Most credit unions do not yet originate enough loans to sponsor securitizations, but for those that do, it is prudent to propose specific safety and soundness provisions."
Under the rule, qualifying credit unions can securitize loans that they originated under certain conditions (Parts 721 and 741 of the rule), though CUs must create separate, special-purpose entities to hold the assets and have independent risk-management controls in place, as well as perform independent audits on an annual basis.
The credit union's board and senior management must also have adequate understanding of the securitization process, and the CU must have a board-approved securitization policy in place.
Following the meeting, NAFCU Senior Vice President of Government Affairs and General Counsel Carrie Hunt said in a statement that the trade group is "pleased that NCUA put out a proposed rule to provide asset securitization authority for credit unions, which reflects a key recommendation of NAFCU's 'Dirty Dozen' list of rules that could be improved or eliminated."
Along with the securitization rule, the NCUA Board approved a proposed rule to provide safe harbor for assets transferred by federally insured CUs in connection with securitizations or participations.
Matz said the rule was "essential to creating a viable market for credit union securitizations," adding that it protects investors in the event that CUs are conserved or liquidated.
Assistance for Underwater Homeowners
Among the other items unanimously approved by the board was a proposed rule to assist homeowners underwater on their mortgages and allowing credit unions to refinance or modify real estate loans without obtaining additional appraisals.
As part of NCUA's Regulatory Modernization Initiative, the rule allows CUs to modify or refinance mortgages in markets where home values have declined, foregoing appraisal requirements if the credit union already holds the mortgage and no new funds are being advanced (or if there is adequate collateral protection in place to cover any advancement of monies).
Matz likened the rule to the agency's Troubled Debt Restructuring rule, noting that it "both gives relief to homeowners and reduces unnecessary paperwork for credit unions."
NCUA also revised a rule for credit unions voluntarily liquidating, increasing asset-size thresholds for certain procedural requirements, giving CUs more flexibility when it comes to electronically publishing creditor notices and issues of member share payouts.
"This rule will reduce administrative burdens and ensure every credit union member receives all their insured funds," said Matz. "We are not encouraging more credit unions to liquidate, but we want to make the process as efficient as possible when they do make this decision."
NAFCU also praised that move.
"NAFCU supports the NCUA Board's adoption of technical amendments to the voluntary liquidations rule to reflect technological advances at credit unions," said Hunt. "We will continue to encourage the agency to also look at advertising rule changes that would accommodate the rise of social media and mobile banking."
Finally, NCUA Board approved a charter conversion for Lenexa, Kan.-based Mainstreet CU, expanding which is expanding to a federal community charter, allowing it to serve a potential field of membership of more than one million.
