To: CEOs of State Chartered Credit Unions
From: Sarah H. Moore, Administrator ACUA
Date: April 14, 2016
Re: Loan Participations and Purchase of Loans
Applicable Rules and Regulations: ACUA: Code of Alabama, Section 5-17-4, NCUA title 12, chapter VII, Subchapter A- Parts 701.22 (loan participations) and 701.23 (purchase of eligible obligations).
Loan participations and Loan purchases
Question: Can a state chartered credit union purchase loan participations that are outside its field of membership?
Answer: Yes, as long as the credit union complies with all other regulations governing loan participations. NCUA Part 701.22 b (4) does not apply to state chartered credit unions.
In addition to the requirements of NCUA Part 701.22, from a safety and soundness perspective, ACUA expects that before such purchase of a loan participation is made that the purchasing credit union:
a) has underwritten the loan as if the purchasing credit union was originating the loan,
b) the loan is of a type that the purchasing credit union has the authority and ability to originate, and
c) the loan participation agreement is balanced and does not impose more than proportional risk to the participating credit union.
Question: Can a state chartered credit union purchase whole loans or pools of loans outside of its field of membership?
Answer: Yes, as long as the loan is of the nature and type that the credit union could have originated itself and all other requirements of NCUA Part 701.23 are met.
In addition to the requirements of NCUA Part 701.23, state chartered credit unions are expected to underwrite the loan or pool of loans and have documentation of the underwriting in its files as if the credit union had originated the loan or pool of loans.