Credit unions that exceed the NCUA’s new loan participation rule concentration limits have until the end of today to make new purchases.
According to a letter to credit unions and supervisory guidance posted Thursday on the NCUA’s website, once the rule takes effect Monday, credit unions that exceed either the single originating lender limit or single borrower concentration cap may not purchase additional loan participations until existing balances are grandfathered into compliance.
The rule applies to all credit unions that purchase participation interested in loans made by a third party, NCUA Chairman Debbie Matz wrote in the letter.
Credit unions will now have to abide by a concentration cap that limits participation loans from single originators to 100% of net worth or $5 million, whichever is greater. And, purchases of loan participations made to any one borrower or group of associated borrowers cannot exceed 15% of the purchasing credit union’s net worth.
Limits on both requirements can be exceeded with approved waivers. One-time waivers will be granted primarily to credit unions that exceed the single borrower limit, and could include loans following natural disasters affecting a service area. Blanket waivers would predominantly allow a credit union to conduct participation loan activities above the single originator cap.
In the supervisory guidance document, the NCUA detailebd all information required for a waiver application and factors it considers when approving or denying the waiver request.
Both one-time and blanket waivers should be obtained in advance of a pending loan or situation-specific event to facilitate timely processing of loan applications, the NCUA said.
The NCUA will also require originating lenders that are federal credit unions to retain at least 10% of the loan. State-chartered credit unions, CUSOs and banks that originate participation loans must retain 5%.
Written loan participation agreements between originators and borrowers will also be required, as will formal loan participation policies for purchasers that include self-imposed limits on loan types and single borrower concentrations.
Matz also said NCUA examiners received supervisory guidance on the rule, including the waiver process.
The NCUA Board approved the rule at its June board meeting and originally set a compliance date in July. However, upon request from credit unions and trade groups, the regulator extended the effective date to Sept. 23.