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NCUA Approves Loan Participation Rule
WASHINGTON (6/21/13)--The National Credit Union Administration's final rule on loan participations implemented a number of changes sought by the Credit Union National Association and is now a much more workable framework for credit unions to utilize loan participations, said CUNA President/CEO Bill Cheney.

The NCUA on Thursday approved a final rule on loan participations with a limit on loans from one originator of 100% of a credit union's net worth. This is up from the proposed 25% of net worth cap. Also very significant, the federal regulator approved an expanded waiver process for the single-originator limit and limits to one borrower.

The NCUA also approved a grandfather provision so that credit unions pushed over the limit by new rule can move their loans into line: such credit unions would not have to sell loans immediately to come into compliance.

"Loan participations are an important tool for credit unions and are an example of how credit unions cooperate together to better serve members," Cheney said. "The original proposal had strict limitations that would have limited the ability of credit unions to utilize participations. We are pleased to see that NCUA has taken into consideration the majority of CUNA's recommendations and worked with the system to make significant improvements in the final rule."

The rule will go into effect 30 days after its publication in the Federal Register.

During consideration of the rule this morning, NCUA Chair Debbie Matz emphasized that the rule focuses on purchasers, not originators. It is meant to protect the credit union system without discouraging credit union loan participations, she added.

The agency is "mindful that loan participations strengthen the credit union industry by providing a useful way for credit unions to diversify their loan portfolios, improve earnings, generate loan growth, manage their balance sheets, and comply with regulatory requirements," Matz said. "Credit unions also use liquidity obtained through the sale of loan participations to increase the availability of credit to small businesses and consumers," she noted.

CUNA raised serious concerns about the proposal when it was issued in December 2011, saying it would add to the regulatory burden of affected credit unions in a manner that is wholly disproportionate to the risks associated with loan participations.

The NCUA board also approved an Illinois Member Business Loan (MBL) rule that was proposed by that state's credit union regulator. The rule is similar to the NCUA's current MBL rule.

NCUA regulations allow the agency to exempt federally insured, state-chartered credit unions from compliance with the agency's MBL rules if the board determines the state has developed an MBL rule that minimizes risk and accomplishes the overall objectives of NCUA's rule. Other states that have their own MBL rules are Maryland, Washington, Wisconsin, Texas, Oregon, and Connecticut.

For a summary of the meeting and a chart detailing the loan participation rule, use the resource links.

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