This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

86867 

Vol. 85, No. 251 

Thursday, December 31, 2020 

1 12 CFR 703.16. 

2 12 CFR 703.14. 

3 12 CFR 703.2. 

4 12 U.S.C. 1757(7), (8), (14), (15). 

5 62 FR 32989 (June 18, 1997); 66 FR 54168, 

54169 (Oct. 26, 2001); 67 FR 78996, 78997 (Dec. 27, 

2002); 12 CFR 703.16(a). 

6For example, see 12 CFR 1024.17; 12 CFR part 

1024, subpart C; 12 CFR 1026.20, .36, .40–.41. 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Parts 703 and 721 

RIN 3133–AF26 

Mortgage Servicing Rights 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule. 

SUMMARY: The NCUA Board (Board) 

proposes to amend its investment 

regulation to permit federal credit 

unions (FCUs) to purchase mortgage 

servicing rights from other federally 

insured credit unions under certain 

conditions. Under the proposed rule, 

eligible FCUs may purchase the 

mortgage servicing rights of loans that 

the FCU is otherwise empowered to 

grant, provided these investments are 

consistent with safety and soundness 

and made in accordance with the FCU’s 

policies and procedures that address the 

risk of these investments and servicing 

practices. 

DATES: Comments must be received on 

or before February 1, 2021. 

ADDRESSES: You may submit written 

comments, identified by RIN 3133– 

AF26, 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. 

• Fax: (703) 518–6319. Include 

‘‘[Your Name]—Comments on Proposed 

Rule: Mortgage Servicing Rights’’ in the 

transmittal. 

• Mail: Address to Melane ConyersAusbrooks, Secretary of the Board, 

National Credit Union Administration, 

1775 Duke Street, Alexandria, Virginia 

22314–3428. 

Public Inspection: You may view all 

public comments on the Federal 

eRulemaking Portal at http://

www.regulations.gov as submitted, 

except for those we cannot post for 

technical reasons. The NCUA will not 

edit or remove any identifying or 

contact information from the public 

comments submitted. Due to social 

distancing measures in effect, the usual 

opportunity to inspect paper copies of 

comments in the NCUA’s law library is 

not currently available. After social 

distancing measures are relaxed, visitors 

may make an appointment to review 

paper copies by calling (703) 518–6540 

or emailing OGCMail@ncua.gov. 

FOR FURTHER INFORMATION CONTACT: Rick 

Mayfield, Senior Capital Markets 

Specialist; Lou V. Pham, Senior Credit 

Specialist, Office of Examination & 

Insurance, or Ian Marenna, Associate 

General Counsel; Chrisanthy Loizos, 

Senior Trial Attorney, Office of General 

Counsel, at 1775 Duke Street, 

Alexandria, VA 22314 or telephone: 

(703) 518–6300 or (703) 581–6540. 

SUPPLEMENTARY INFORMATION: 

I. Background 

II. Legal Authority 

III. Summary of the Proposed Rule 

IV. Regulatory Procedures 

I. Background 

Generally, when a lender originates a 

mortgage loan, the lender may retain the 

loan and the servicing function for the 

loan in its portfolio, sell the loan along 

with the mortgage servicing rights to 

another party, or separate the mortgage 

servicing rights (MSRs) from its 

mortgage loan and transfer only the loan 

or the MSRs to another party. This 

proposed rulemaking focuses on the 

purchase of MSRs, as assets that are 

apart from their underlying mortgage 

loans. The Board proposes to permit 

FCUs to purchase MSRs by removing 

MSRs from the list of prohibited 

investments 1 in the Investment and 

Deposit Activities Rule (investment 

rule) and adding the purchase of MSRs 

from other federally insured credit 

unions (FICUs) to the rule’s list of 

permissible investments for FCUs.2

Under the investment rule, MSRs are 

defined as ‘‘a contractual obligation to 

perform mortgage servicing and the 

right to receive compensation for 

performing those services. Servicing is 

the administration of a mortgage loan, 

including collecting monthly payments 

and fees, providing recordkeeping and 

escrow functions, and, if necessary 

curing defaults and foreclosing.’’ 3

While the Federal Credit Union Act 

specifies the statutory investment 

powers for FCUs,4 the NCUA has 

adopted regulatory prohibitions against 

certain investments and investment 

activities on the basis of safety and 

soundness concerns, including 

investments in MSRs.5

Mortgage servicing rights can be 

derived through various processes. 

Because FCUs are currently prohibited 

from purchasing MSRs by regulation, 

they are primarily derived when an FCU 

originates a residential mortgage loan 

and sells the loan to investors on the 

secondary market or other purchasers 

while the retaining the corresponding 

servicing rights. Alternatively, and to a 

lesser degree, FCUs can retain MSRs if 

they later sell residential mortgage loans 

that they had purchased from the 

originating lender. 

Mortgage loan servicers function as 

intermediaries between borrowers and 

owners of the mortgage loans. MSRs 

entitle the servicer to receive 

compensation from the owner of the 

mortgage loan in return for performing 

servicing activities for the underlying 

mortgage loan. These servicing 

functions are subject to a servicing 

agreement and consumer protection 

laws, as applicable.6 These functions 

generally include collecting monthly 

payments and fees, providing 

recordkeeping, and performing escrow 

functions. Further, the servicer also 

works with borrowers to mitigate loss 

and pursues foreclosure, as authorized. 

In guidance to examination staff, the 

Office of the Comptroller of the 

Currency describes MSRs or mortgage 

servicing assets (MSAs) as ‘‘complex, 

intangible assets that arise from owning 

the rights to service mortgage loans that 

have been securitized or sold to thirdparty investors. The market value of 

MSAs is affected by market supply and 

demand factors. MSA values are 

economically represented as the 

discounted present value of estimated 

future net cash flows over the life of the 

underlying mortgage loans. MSAs 

expose servicers to interest rate, price, 

compliance, and operational risks. The 

risk of changes in the fair value of MSAs 


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86868 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules 

7Comptroller’s Handbook for Mortgage Banking, 

version 1 Feb. 2014 at p. 67. 

8See Financial Accounting Standards Board 

(FASB) Accounting Standards Codification (ASC) 

860—Transfer and Servicing of Financial Assets. 

9Small servicers are exempt from numerous 

requirements that apply to mortgage servicing 

activities under Regulations X and Z. See, e.g. 12 

CFR 1024.17; 12 CFR 1024.37–.41; 12 CFR 1026.41. 

Generally, to qualify as a small servicer, a servicer 

must service, together with any affiliates, 5,000 or 

fewer mortgage loans, for all of which the servicer 

(or an affiliate) is the creditor or assignee. See 12 

CFR 1026.41(e)(4) for full definition. 

10Note that on April 3, 2020, NCUA and the 

federal banking regulators issued the ‘‘Joint 

Statement on Supervisory and Enforcement 

Practices Regarding the Mortgage Servicing Rules in 

Response to the COVID–19 Emergency and the 

CARES Act’’ available at https://

files.consumerfinance.gov/f/documents/cfpb_

interagency-statement_mortgage-servicing-rulescovid-19.pdf and the Consumer Financial 

Protection Bureau (CFPB) issued frequently asked 

questions regarding its mortgage servicing rules 

related to the COVID–19 Emergency available at 

https://files.consumerfinance.gov/f/documents/ 

cfpb_mortgage-servicing-rules-covid-19_faqs.pdf. 

See also the CFPB’s interim final rule, ‘‘Treatment 

of Certain COVID–19 Related Loss Mitigation 

Options,’’ 85 FR 39055 (June 30, 2020). 

11For example, the SCRA contains a strict 

liability provision that requires a court order before 

foreclosing on a mortgage during a period of 

military service, and for one year after a period of 

military service. 50 U.S.C. 3953. 

12Note the CFPB recently issued a final rule 

implementing the FDCPA to address the activities 

of debt collectors, as that term is defined in the 

FDCPA, with a focus on debt collection 

communications and related practices by debt 

collectors. See 87 FR 76734 (Nov. 30, 2020). 

13 12 CFR 701.23(e); 44 FR 27068 (May 9, 1979). 

14 12 CFR part 721. 

15 12 CFR 721.3(c). 

16 66 FR 40845, 40850 (Aug. 6, 2001). 

17 Id.; see also NCUA OGC Opinion 09–0430 

(August 2009) available at https://www.ncua.gov/ 

regulation-supervision/legal-opinions/2009/ 

nonmember-loan-servicing. 

18 67 FR 78996, 78998 (Dec. 27, 2002). 

19 68 FR 32960 (June 3, 2003). 

20NCUA OGC Opinion 01–0502 (June 18, 2001) 

available at https://www.ncua.gov/files/legalopinions/OL2001-0502.pdf; 12 CFR 721.3(b)(1). 

21 Generally, a CUSO is an entity in which a FICU 

has an ownership interest or to which a FICU has 

extended a loan, and that entity is engaged 

primarily in providing products or services to credit 

unions or credit union members. A CUSO also 

includes any entity in which a CUSO has an 

ownership interest of any amount, if that entity is 

engaged primarily in providing products or services 

to credit unions or credit union members. See 12 

CFR 712.1(d). 

22 12 CFR 712.5(j); see also NCUA OGC Opinion 

09–0349 (May 2009) available at https://

www.ncua.gov/regulation-supervision/legalopinions/2009/credit-union-service-organizationcuso-purchase-and-servicing-non-performing-loans. 

23NCUA Call Report Data as of December 31, 

2018 and December 31, 2019. 

due to changes in interest rates is 

normally considered interest rate risk. It 

could be considered price risk, however, 

if the bank is actively buying and selling 

its MSAs. MSAs pose operational risk 

because the servicing and valuation 

functions are operations intensive and 

model dependent.’’ 7

MSRs are generally capitalized at fair 

value and subsequently accounted for 

using the amortization or fair value 

method.8 The fair value of MSRs is the 

net present value, using a market-based 

discount rate, of servicing revenue 

components (servicing fee, float income, 

ancillary income, etc.) less expenses, 

adjusted for prepayment speeds. 

Prepayment speeds in turn are generally 

highly dependent on prevailing interest 

rates. However, determining the fair 

value of MSRs can be a complex 

exercise given that their market prices 

are generally not readily observable. 

Hence, owners of MSRs typically 

depend on data-driven models, whether 

proprietary or purchased, and third 

party expertise to help them value their 

MSRs. 

MSRs impact compliance and 

reputation risk due to the high touch 

nature of interactions with consumers 

and the attendant legal requirements 

imposed on mortgage servicers. For 

example, depending on the amount and 

types of mortgage loans serviced,9

servicers must comply with a variety of 

regulatory requirements that implement 

the Dodd–Frank Wall Street Reform and 

Consumer Protection Act of 2010, 

including amendments to Regulation Z 

(implementing the Truth in Lending 

Act) and Regulation X (implementing 

the Real Estate Settlement Procedures 

Act),10 as well as other applicable state 

and federal laws, such as the 

Servicemembers Civil Relief Act 

(SCRA),11 the Fair Debt Collection 

Practices Act,12 and Section 5 of the 

Federal Trade Commission Act, which 

prohibits unfair or deceptive acts or 

practices. To be successful, servicers 

need not only to understand 

complexities in determining the value of 

these assets, but should have effective 

information management systems, 

trained personnel, robust internal 

controls, and appropriate risk 

management to properly service the 

loans. 

Over decades, the NCUA has issued 

many regulations and opinions that 

have recognized the authority of an FCU 

to engage in the servicing of loans in 

varying contexts. Since 1979, an FCU 

has been permitted ‘‘to service any 

eligible obligation it purchases or sells 

in whole or in part’’ under the NCUA’s 

eligible obligations rule.13 The 

incidental powers regulation 14 has also 

long provided that FCUs have the 

authority to provide correspondent 

services, including loan servicing, to 

other credit unions.15 In adopting that 

regulation, the Board observed: 

‘‘Correspondent services are services or 

functions provided by an FCU to 

another credit union that the FCU is 

authorized to perform for its own 

members or as part of its operation.’’ 16

During the part 721 rulemaking in 2001, 

the Board agreed with commenters that 

loan servicing and escrow services were 

examples of permitted correspondent 

services.17 Furthermore, although the 

purchase of MSRs was to be prohibited 

under the investment rule, the Board 

recognized during the rulemaking that 

an FCU could perform servicing for a 

member engaged in making mortgage 

loans as a financial service to its 

member: ‘‘For this activity to be 

permissible as a financial service to a 

member, the member must continue to 

own the loan during the time that the 

credit union provides servicing. In this 

context, the NCUA Board concludes that 

providing mortgage servicing is an 

appropriate exercise of a credit union’s 

incidental powers to provide financial 

service to a member.’’ 18 Therefore, the 

authority to provide mortgage loan 

servicing as a financial service to 

members, under the conditions above, 

has been in place since 2003.19 FCUs are 

also permitted to provide mortgage loan 

servicing to others as a charitable 

contribution.20 Further, under the 

NCUA’s Credit Union Service 

Organization (CUSO) regulation, 

CUSOs 21 are expressly preapproved to 

provide loan support services, including 

loan servicing and debt collection 

services.22

The Board believes it is appropriate 

now to remove the prohibition against 

FCUs from purchasing MSRs as 

permissible investments while also 

maintaining safety and soundness. FCUs 

have long had experience originating 

and servicing residential mortgage 

loans. In fact, first lien residential 

mortgage loans account for over one 

third of outstanding credit union loans 

as of September 30, 2020, which is the 

single largest loan concentration in the 

system. FCUs accounted for $78 billion 

of the approximately $154 billion in 

first lien residential mortgage loans 

originated by all FICUs in 2019. 

Comparatively, FCUs accounted for $62 

billion of the approximately $117 

billion in first lien residential mortgage 

loans originated by all FICUs in 2018.23

Like many financial institutions 

involved in residential lending, FCUs 

engage in both origination and servicing 

activities related to residential lending. 

As of September 30, 2020, 

approximately 3,700 FICUs held $431 

billion in aggregate outstanding first lien 

residential mortgage loans, with 2,166 

FCUs accounting for $214 billion of the 


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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules 86869 

24NCUA Call Report Data as of September 30, 

2020. 

25NCUA Call Report Data as of September 30, 

2020. 

26 12 U.S.C. 1766(a). 27 12 U.S.C. 1751–1795k. 28See 12 U.S.C. 1786(r) (providing: ‘‘For purposes 

of [the Federal Credit Union Act], the term 

‘institution-affiliated party’’ means—(1) any 

committee member, director, officer, or employee 

of, or agent for, an insured credit union; (2) any 

consultant, joint venture partner, and any other 

person as determined by the Board (by regulation 

or on a case-by-case basis) who participates in the 

conduct of the affairs of an insured credit union; 

and (3) any independent contractor (including any 

attorney, appraiser, or account) who knowingly or 

recklessly participates in—(A) any violation of any 

law or regulation; (B) any breach of fiduciary duty; 

or (C) any unsafe or unsound practice, which 

caused or is likely to cause more than a minimal 

financial loss to, or a significant adverse effect on, 

the insured credit union.’’). 

29 12 U.S.C. 1786. 

30 12 U.S.C. 1757(14). 

31 12 U.S.C. 1757(17). 

32 12 CFR part 721. 

33 12 CFR 721.3(c). 

34 12 CFR 701.23(e); 44 FR 27068 (May 9, 1979). 

35NCUA OGC Op. 04–0713 (Oct. 25, 2004) 

available at https://www.ncua.gov/files/legalopinions/OL2004-0713.pdf, 76 FR 81421, 81425 

(December 28, 2011). 

outstanding amount.24 These residential 

mortgage loans are considered 

‘‘portfolio’’ mortgage loans because the 

FICU has not sold its loans and the 

FICU (or a related CUSO) provides 

mortgage servicing activities for said 

loans. There are no associated MSRs 

with portfolio mortgage loans from an 

asset and accounting perspective, but 

the responsibility to service the 

mortgage loan rests with the portfolio 

lender. 

Credit unions, like many other 

lenders involved with mortgage finance, 

also actively engage in selling 

residential mortgage loans to investors 

on the secondary market or other 

purchasers. In 2019, approximately 

1,100 FICUs collectively sold $63 

billion in residential mortgage loans. 

Five hundred fifty-six (556) FCUs 

accounted for $39 billion of the $63 

billion of mortgage loans sold in 2019. 

Comparatively, approximately 1,100 

FICUs collectively sold $46 billion in 

residential mortgage loans in 2018, with 

553 FCUs accounting for $26 billion of 

the total amount sold. 

The NCUA began collecting data on 

MSRs owned by FICUs in 2003 and has 

found that the value of MSRs in the 

credit union system increased from 

approximately $330 million in 2004 to 

$1.8 billion in 2019. During this period, 

the amount of real estate loans sold 

where servicing was retained increased 

from $46 billion to $240 billion. As of 

September 30, 2020, more than 500 

FICUs owned $1.9 billion in MSRs. Of 

this figure, 235 FCUs accounted for $1.1 

billion in MSRs.25

The Board recognizes that MSRs have 

certain inherent attributes that can have 

an adverse impact on an FCU’s financial 

condition. Mortgage servicing rights can 

carry operational risks due to a myriad 

of statutes and regulations to protect 

consumers, which can expose FCUs to 

reputational, legal, and compliance risk. 

In addition, MSRs can expose servicers 

to liquidity risk as certain mortgage 

loans which have been sold to investors 

require the servicer to remit payments to 

the investors even if borrowers do not 

make the monthly mortgage loan 

payments. The value of MSRs is highly 

dependent on prevailing interest rates. 

In a rapidly increasing or decreasing 

interest rate environment, this can 

introduce extreme volatility to a credit 

union’s financial condition as the MSRs 

are periodically valued for accounting 

and reporting purposes. An FCU in poor 

financial condition may not be able to 

withstand the financial impact of a 

significant loss due to a write-down in 

the value of its MSRs. 

The Board believes that FCUs have 

demonstrated experience originating 

and servicing residential mortgage 

loans. Furthermore, although valuing 

MSRs can be complex, FCUs have 

sufficient access to market resources 

and expertise to help them value MSRs 

when purchased or retained on an 

ongoing basis for accounting purposes. 

For these reasons, the Board believes 

removing the prohibition in the 

investment rule is appropriate and 

consistent with safety and soundness. 

The proposed rule would provide 

flexibility for FCUs to operate their 

mortgage loan business and would also 

provide FICUs another avenue to sell 

their MSRs, which could generate a 

higher selling price and keep the MSRs 

within the credit union system. 

II. Legal Authority 

Section 120(a) of the Federal Credit 

Union Act 26 authorizes the Board to 

prescribe rules and regulations for the 

administration of the statute.27 In 

addition, section 206 of the Federal 

Credit Union Act provides the Board 

with broad authority to take 

enforcement action against a FICU or an 

‘‘institution-affiliated party’’ 28 that is 

engaging or has engaged, or the Board 

has reasonable cause to believe that it is 

about to engage, in an unsafe or 

unsound practice in conducting the 

business of such credit union.29

Congress chose not to define ‘‘unsafe or 

unsound practices’’ in the Federal 

Credit Union Act, leaving 

determinations regarding which actions 

are unsafe or unsound to the Board. 

The Federal Credit Union Act 

authorizes an FCU ‘‘to sell all or a part 

of its assets to another credit union 

[and] to purchase all or part of the assets 

of another credit union. . . subject to 

regulations of the Board.’’ 30 Given that 

MSRs are financial assets that may be 

sold separately from their underlying 

mortgage loans, an FCU has the 

statutory authority to sell MSRs to, and 

purchase MSRs from, another credit 

union. Further, the Federal Credit 

Union Act authorizes an FCU ‘‘to 

exercise such incidental powers as shall 

be necessary or requisite to enable it to 

carry on effectively the business for 

which it is incorporated.’’ 31 As such, 

NCUA’s incidental powers regulation 32

has long provided that FCUs have the 

authority to provide correspondent 

services, including loan servicing, to 

other credit unions.33 Similarly, the 

eligible obligations rule allows an FCU 

‘‘to service any eligible obligation it 

purchases or sells in whole or in 

part.’’ 34

III. Summary of the Proposed Rule 

As set out above, the Board proposes 

to remove the current prohibition on 

FCUs purchasing MSRs from the 

investment rule. The Board is proposing 

to amend § 703.14 to explicitly permit 

an FCU to purchase MSRs from other 

FICUs as an investment, provided: (1) 

The underlying mortgage loans of the 

MSRs are loans the FCU is empowered 

to grant; (2) the FCU purchases the 

MSRs within the limitations of the 

FCU’s board of directors’ written 

purchase policies; and (3) the board of 

directors or investment committee 

approves the purchase in advance. 

To ensure that MSRs purchased by 

FCUs meet the same requirements and 

standards applicable to the loans that a 

buying FCU can make, the proposed 

rule would allow purchases of MSRs 

from FICUs only if the underlying 

mortgage loans from which the MSRs 

are derived meet the same conditions 

for loans the FCU is empowered to 

grant. This is the same standard 

applicable to FCUs when buying certain 

eligible obligations under § 701.23(b). 

The phrase ‘‘empowered to grant’’ refers 

to an FCU’s authority to make the type 

of loans permitted by the FCU Act, 

NCUA regulations, FCU Bylaws, and an 

FCU’s own internal policies.35

Consistent with § 701.23, the Board is 

also requiring MSRs be purchased 

within the limitations of the FCU’s 

board of directors’ written purchase 

policies and requiring the FCU’s board 

of directors or investment committee 

approves the purchase in advance. 


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36As noted, many FCUs have considerable 

experience in managing the servicing of mortgage 

loans, therefore the Board is not providing the usual 

60-day comment period for this proposal which 

relieves a regulatory prohibition on investments in 

MSRs as assets. See NCUA Interpretive Ruling and 

Policy Statement (IRPS) 87–2, as amended by IRPS 

03–2 and IRPS 15–1. 80 FR 57512 (Sept. 24, 2015), 

available at https://www.ncua.gov/files/ 

publications/irps/IRPS1987-2.pdf. 37 12 CFR 701.23(b)(2), 703.108(a)(1). 

The proposed rule necessarily 

removes the current prohibition against 

MSRs purchases imposed in § 703.16(a) 

and reserves the paragraph to 

correspond to the change in § 703.14. 

The remaining provision in § 703.16(a), 

which recognizes an FCU’s incidental 

powers authority to service the loans 

owned by a member engaged in 

mortgage lending, is transferred to part 

721 as another example of loan-related 

product. While loan servicing is an 

incidental powers activity when 

performed for other credit unions under 

§ 721.3(c) as a correspondent service, 

the proposed addition to paragraph (h) 

reflects the existing authority currently 

found in § 703.16(a) to provide loanrelated services to members. 

The Board invites comments on all 

aspects of the proposal 36 and, in 

addition, requests comment on the 

following questions. The questions raise 

issues the Board intends to incorporate 

in the final rule to ensure appropriate 

safeguards and limitations, and will 

consider the comments and supporting 

information it receives in response to 

this notice. 

How would the proposed rule to 

permit an FCU to purchase MSRs from 

other FICUs benefit an FCU’s mortgage 

loan servicing operations? The Board 

solicits feedback on whether the current 

prohibition against FCUs purchasing 

MSRs as financial assets from other 

mortgage lenders has impacted the 

ability of FCUs to achieve their strategic 

objectives. 

If FCUs purchase volumes of MSRs 

from different FICUs, are they prepared 

to ensure they have effective compliance 

management systems for compliance 

with the consumer protection-related 

laws and regulations that apply to 

mortgage loan servicers? FCUs manage 

their exposure to compliance risk 

through a comprehensive compliance 

program, often referred to as a 

compliance management system (CMS). 

An FCU’s CMS includes policies, 

procedures, processes, monitoring, and 

an audit function regarding compliance 

with all applicable laws and regulations, 

including those that apply to mortgage 

loan servicing activities. An effective 

CMS promotes compliance with 

consumer protection-related laws and 

regulations and prevents consumer 

harm. The Board solicits comment on to 

what extent FCUs may need to make 

appropriate adjustments to their CMS if 

they expand their mortgage loan 

servicing as provided under the 

proposed rule, particularly to comply 

with the consumer protections that 

apply to the transfer and servicing of 

mortgage loans, and how the NCUA can 

best ensure that FCUs purchasing MSRs 

do so. 

Should the proposed rule include 

additional criteria for an FCU to be 

eligible to purchase MSRs? In particular, 

should the FCU be required to be ‘‘well 

capitalized’’ as defined in part 702? If 

so, similarly to the eligible obligations 

rule, should it be well capitalized for a 

minimum of the six quarters preceding 

its purchase of MSRs? Should the FCU 

be required to have a composite CAMEL 

rating of 1 or 2 with a Management 

rating of a 1 or 2 for at least the last two 

examination cycles? As detailed in this 

notice, MSRs carry a variety of risks. As 

such, the Board is considering certain 

safeguards that would apply before an 

FCU is eligible to purchase MSRs, in 

order to mitigate some of these risks. 

The Board is considering whether to 

incorporate one of, or a combination of, 

these elements in a final rule because it 

has found these standards to be prudent 

in other contexts, including the eligible 

obligations rule and investment rule in 

relation to investments in derivatives.37

The Board solicits feedback on whether 

these proposed standards would 

mitigate risks inherent in the purchase 

of MSRs and help ensure that FCUs 

engage in this activity in a safe and 

sound manner. 

Should the final rule include a limit 

on the amount of MSRs an FCU can 

hold to address concentration risk? 

Specifically, should a limit on the 

amount of MSRs held by an FCU be 

determined using the total amount of 

MSRs purchased by the FCU or, 

alternatively, the aggregate amount of 

MSRs purchased from other parties and 

MSRs retained after the sale of the 

underlying mortgage loans by the FCU? 

Should the rule limit the total amount 

of MSRs that an FCU may hold to no 

more than twenty-five percent (25%) of 

the FCU’s net worth or would another 

standard, such as a concentration limit 

based on assets, be more appropriate to 

address concentration risk? High 

concentrations in a particular asset can 

expose a credit union to undue risk. The 

Board solicits feedback on whether a 

concentration limit for MSRs would 

help alleviate risks for FCUs that 

purchase or originate MSRs. 

To address the liquidity risk of the 

purchasing FCU, should the final rule 

limit the amount of months an FCU is 

obligated to remit payments to the 

mortgage loan owner if the borrower 

fails to make payments? Specifically, 

should there be a maximum of three to 

six months of payments made to the 

mortgage loan owner when a borrower 

fails to make payment on the serviced 

mortgage loan? MSRs can carry 

liquidity risks if the servicer is required 

under the mortgage servicing contract to 

remit payments to owners of the 

mortgage loans even if the servicer is 

not receiving mortgage payments from 

borrowers. The Board solicits feedback 

on whether there should be a limit on 

MSRs with certain remittance structures 

to mitigate liquidity risks to FCUs that 

purchase MSRs. 

Finally, the Board solicits comment 

on whether the safeguards and 

limitations applicable to FCUs in the 

final rule should be extended to all 

FICUs in light of the risks associated 

with the purchase of MSRs, as a 

requirement for obtaining and 

maintaining federal insurance. 

Regulatory Procedures 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

generally requires that, in connection 

with a notice of proposed rulemaking, 

an agency prepare and make available 

for public comment an initial regulatory 

flexibility analysis that describes the 

impact of a proposed rule on small 

entities. A regulatory flexibility analysis 

is not required, however, if the agency 

certifies that the rule will not have a 

significant economic impact on a 

substantial number of small entities 

(defined for purposes of the RFA to 

include FICUs with assets less than 

$100 million) and publishes its 

certification and a short, explanatory 

statement in the Federal Register 

together with the rule. The proposed 

rule provides additional investment 

authority to FCUs that meet certain 

eligibility requirements due to the 

complexity and risk related to the 

purchase of MSRs. As of March 31, 

2020, of the 3,256 credit unions with 

federal charters, only 17 FCUs with 

assets of less than $100 million had 

MSRs on their books. Accordingly, the 

NCUA certifies that the proposed rule 

will not have a significant economic 

impact on a substantial number of small 

credit unions. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) applies to rulemakings in which 

an agency creates a new or amends 

existing information collection 


khammond on DSKJM1Z7X2PROD with PROPOSALS
Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Proposed Rules 86871 

38 44 U.S.C. 3507(d); 5 CFR part 1320. 

39 44 U.S.C. Chap. 35. 

40Public Law 105–277, 112 Stat. 2681 (1998). 

requirements.38 For the purpose of the 

PRA, an information collection 

requirement may take the form of a 

reporting, recordkeeping, or a thirdparty disclosure requirement. The 

proposed rule does not contain 

information collection requirements that 

require approval by OMB under the 

PRA.39 The proposed rule provides 

regulatory relief by allowing eligible 

FCUs to expand their investment 

authority to include the purchase of 

MSRs under similar standards 

applicable to the purchase of eligible 

obligations and other investments. 

C. 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, the 

NCUA, an independent regulatory 

agency as defined in 44 U.S.C. 3502(5), 

voluntarily complies with the executive 

order. This rulemaking 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. The NCUA has 

determined that this proposal does not 

constitute a policy that has federalism 

implications for purposes of the 

executive order. 

D. Assessment of Federal Regulations 

and Policies on Families 

The NCUA has determined that this 

proposed rule will not affect family 

well-being within the meaning of 

Section 654 of the Treasury and General 

Government Appropriations Act, 

1999.40

List of Subjects 

12 CFR Part 703 

Credit unions, Investments. 

12 CFR Part 721 

Credit unions, Functions, Implied 

powers. 

By the National Credit Union 

Administration Board on December 17, 2020. 

Melane Conyers-Ausbrooks, 

Secretary of the Board. 

For the reasons discussed above, the 

NCUA Board proposes to amend 12 CFR 

parts 703 and 721 as follows: 

PART 703—INVESTMENT AND 

DEPOSIT ACTIVITIES 

■ 1. The authority citation for part 703 

is revised to read as follows: 

Authority: 12 U.S.C. 1757(7), 1757(8), 

1757(14) and 1757(15). 

■ 2. Amend § 703.14 by adding 

paragraph (l) to read as follows: 

§ 703.14 Permissible investments. 

* * * * * 

(l) Mortgage servicing rights. A 

Federal credit union may purchase 

mortgage servicing rights from other 

federally insured credit unions as an 

investment if all of the following 

conditions are met: 

(1) The underlying mortgage loans of 

the mortgage servicing rights are loans 

the Federal credit union is empowered 

to grant; 

(2) the Federal credit union purchases 

the mortgage servicing rights within the 

limitations of its board of directors’ 

written purchase policies; and 

(3) the board of directors or 

investment committee approves the 

purchase. 

§ 703.16 [Amended] 

■ 2. Amend § 703.16 by removing and 

reserving paragraph (a). 

PART 721—INCIDENTAL POWERS 

■ 4. The authority citation for part 721 

continues to read as follows: 

Authority: 12 U.S.C. 1757(17), 1766 and 

1789. 

■ 5. Amend § 721.3 paragraph (h) by 

revising the last sentence to read as 

follows: 

§ 721.3 What categories of activities are 

preapproved as incidental powers 

necessary or requisite to carry on a credit 

union’s business? 

* * * * * 

(h) * * * These products or activities 

may include debt cancellation 

agreements, debt suspension 

agreements, letters of credit, leases, and 

mortgage loan servicing functions for a 

member as long as the loan is owned by 

a member. 

* * * * * 

[FR Doc. 2020–28278 Filed 12–30–20; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 300 

[REG–114615–16] 

RIN 1545–BP75 

User Fee for Estate Tax Closing Letter 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations establishing a new 

user fee for authorized persons who 

wish to request the issuance of IRS 

Letter 627, also referred to as an estate 

tax closing letter. The Independent 

Offices Appropriations Act of 1952 

authorizes charging user fees in 

appropriate circumstances. The 

proposed regulations affect persons who 

request an estate tax closing letter. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by March 1, 2021. Requests 

for a public hearing must be submitted 

as prescribed in the ‘‘Comments and 

Requests for a Public Hearing’’ section. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at http://

www.regulations.gov (indicate IRS and 

REG–114615–16) by following the 

online instructions for submitting 

comments. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The IRS 

expects to have limited personnel 

available to process public comments 

that are submitted on paper through 

mail. Until further notice, any 

comments submitted on paper will be 

considered to the extent practicable. 

The Department of the Treasury 

(Treasury Department) and the IRS will 

publish for public availability any 

comment submitted electronically, and 

to the extent practicable on paper, to its 

public docket. Send paper submissions 

to: CC:PA:LPD:PR (REG–114615–16), 

Room 5203, Internal Revenue Service, 

P.O. Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning submissions of comments 

and/or requests for a public hearing, 

Regina Johnson, at (202) 317–5177; 

concerning cost methodology, Michael 

Weber, at (202) 803–9738; concerning 

the proposed regulations, Juli Ro Kim, at 

(202) 317–6859 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 


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