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[Federal Register Volume 69, Number 227 (Friday, November 26, 2004)]
[Proposed Rules]
[Pages 68829-68831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-25996]

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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: Proposed rule.

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SUMMARY: NCUA is proposing to amend three subsections of its lending 
rule to 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 proposal clarifies: The conditions for applying the lending 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 NCUA Board is proposing 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: The NCUA must receive comments on or before January 25, 2005.

[[Page 68830]]

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Proposed Rule 701.14, Change in Official in Newly 
Chartered or Troubled Credit Unions'' in the e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

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 NCUA Board (the Board) has a policy of continually reviewing 
NCUA regulations to ``update, clarify and simplify existing regulations 
and eliminate unnecessary and redundant and unnecessary provisions.'' 
NCUA Interpretive Ruling and Policy Statement (IRPS) 87-2, Developing 
and Reviewing Government Regulations. As a result of NCUA's 2003 
review, the Board determined that the rules on loan guarantees and loan 
maturities should be updated to reflect recent OGC opinions.

Summary of Proposed Changes

    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). Where a loan is 
secured by a State or Federal Government insurance or guarantee or in 
the case of a State or Federal program providing an advance commitment 
to purchase the loan, the FCU Act provides relief from these 
limitations and permits an FCU to make the loan for the maturity and 
under the terms and conditions of the government program. 12 U.S.C. 
1757(5)(A)(iii). The FCU Act does not specify the extent to which the 
government program must guarantee or insure the loan, or the portion of 
the loan the program must commit to purchase. NCUA's lending regulation 
mirrors this section of the FCU Act and adds that FCUs may make such 
loans at rates of interest provided in the government program. 12 CFR 
701.21(e). These provisions have the effect of enabling FCUs to 
participate in government lending programs that might otherwise be out 
of reach because of the FCU Act's general limitations.
    OGC has issued legal opinions clarifying that the regulation 
applies whether the government program offers a full or partial 
guarantee, insurance, or commitment to purchase the loan. The proposed 
amendment clarifies that a partial government guarantee, insurance, or 
commitment to purchase a loan is sufficient to effect the application 
of the regulation. The Board believes that adding this clarification to 
the regulation will give full effect to the FCU Act and will benefit 
FCUs and their members by encouraging participation in government 
lending programs.
    The FCU Act prohibits FCUs from granting loans with maturities 
greater than 12 years. 12 U.S.C. 1757(5). It permits longer maturities, 
however, for certain loans including those secured by residential real 
estate and mobile homes. 12 U.S.C. 1757(5)(A). As permitted under the 
FCU Act, the Board has promulgated rules 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).
    Neither the FCU Act nor the lending regulation defines what 
constitutes a mobile home. Previously OGC had narrowly interpreted the 
term to include only homes that met the standards established by an 
industry association to describe a manufactured home. More recently in 
legal opinion OGC 01-0262, dated June 4, 2001, OGC interpreted the term 
to include homes that qualify for the home mortgage interest deduction 
under the Internal Revenue Code (IRC). 26 U.S.C. 163(a), (h)(2)(D). The 
Internal Revenue Service describes three main features any first or 
second home must have to qualify for the deduction. The home securing 
the debt must be a house, condominium, cooperative, mobile home, house 
trailer or similar property that has sleeping, cooking and toilet 
facilities. In the above-referenced opinion, and in a subsequent 
opinion dated July 3, 2001, OGC concluded that, if a loan for a house 
trailer, recreational vehicle (RV) or a boat is secured by a first lien 
and qualifies for the home mortgage interest deduction, then it is 
appropriate to permit an FCU to consider it a mobile home loan with a 
maximum maturity of 20 years.
    The Board believes it will be helpful to clarify the lending rule 
by incorporating this standard into the regulation. An FCU must still 
ensure that it complies with the other requirements of the rule, 
namely, that the home is owner-occupied and the loan is secured by a 
first lien. Of course, FCUs must also perform due diligence to ensure 
that loans are properly secured and safety and soundness concerns may 
dictate against extended maturities for any RV, trailer or boat loan 
with a short useful life.
    A third issue OGC recently addressed involves whether a loan 
secured by manufactured housing should qualify for the longer 
maturities of residential real estate loans. Legal opinion OGC 03-0934, 
dated November 17, 2003. Previously OGC equated manufactured housing 
with mobile homes. Over the past several years, the manufactured 
housing industry has undergone significant changes. Enhancements to the 
quality and standards of manufactured housing, and the fact that 
manufactured housing is intended to be permanently affixed to the land, 
prompted OGC to conclude that loans for manufactured houses that are 
permanently affixed to the land and also meet all other regulatory 
requirements for residential real estate loans under 12 CFR 701.21(g) 
will qualify for the longer maturities. The manufactured housing must 
qualify as real property and be titled as real property under the laws 
of the state where it is located. The loan must have a first lien on 
the manufactured housing as required by Sec.  701.21(g)(5). If the 
member-borrower leases rather than owns the land where the manufactured 
home is located then, to preserve the effectiveness of the FCU's first 
lien position, the FCU and the land owner should have an agreement 
providing for cooperation in the event of default and foreclosure. Of 
course, as a matter of safety and soundness, the FCU should also ensure 
that, when the member-borrower leases the land where the manufactured 
housing is located, the lease is at least as long as the term of the 
loan.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires NCUA to prepare an 
analysis to describe any significant economic impact any proposed 
regulation may have on a substantial number of small entities. NCUA 
considers credit unions having less than ten million in assets to

[[Page 68831]]

be small for purposes of RFA. Interpretive Ruling and Policy Statement 
(IRPS) 87-2 as amended by IRPS 03-2. The proposal clarifies and expands 
the lending rules to incorporate recent OGC opinions. The NCUA has 
determined and certifies that this proposed rule, if adopted, will not 
have a significant economic impact on a substantial number of small 
credit unions. Accordingly, the NCUA has determined that a Regulatory 
Flexibility Analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the proposed 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 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 proposed rule applies only to federal 
credit unions. NCUA has determined that the proposed amendments 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 proposed rule does not constitute a 
policy that has federalism implications for purposes of the executive 
order.

The Treasury and General Government Appropriations Act, 1999---
Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this proposed rule would not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Agency Regulatory Goal

    NCUA's goal is clear, understandable regulations that impose a 
minimal regulatory burden. We request your comments on whether the 
proposed rule is understandable and minimally intrusive if implemented 
as proposed.

List of Subjects in 12 CFR Part 701

    Credit unions, Loans.

    By the National Credit Union Administration Board on November 
18, 2004.
Mary Rupp,
Secretary of the Board.

    Accordingly, the National Credit Union Administration proposes to 
amend 12 CFR part 701 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, 1789.

    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. 04-25996 Filed 11-24-04; 8:45 am]
BILLING CODE 7535-01-P
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