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ALEXANDRIA, Va.-The two-member NCUA Board held a productive meeting this month with five items on its plate including a final rule permitting credit unions to participate in stripped mortgage-backed securities and a proposal to bring the agency’s member business lending regulation more in line with the Small Business Administration rules. In its final regulation on Parts 703 and 704 of NCUA’s regulations concerning Investment and Deposits Activities and Corporate Credit Unions, NCUA determined that some exchangeable CMOs (collateralized mortgage obligations) are no riskier than regular CMOs that credit unions are permitted to participate in. “Direct investment in SMBS raises safety and soundness concerns, but some exchangeable CMOs representing interests in one or more SMBS may be safe investments for credit unions,” the rule reads. However, there are certain standards the CMOs have to meet for credit unions to get involved. First, the price range must be within 20% of the principle remaining and, second, the amortization schedule has to be at a certain rate so that over time the exchangeable CMO does not take on the same risk characteristics as the stripped mortgage-back securities. Finally, the credit union must have someone with appropriate expertise to determine those conditions. NCUA Senior Investment Officer Kim Iverson said determining the first two factors “should be fairly straight forward.” “The corporates actually were the ones who asked them to look at this rule,” Association of Corporate Credit Unions CEO Mike Canning said. The issue arose when some corporates were involved in exchangeable CMOs thinking they were acceptable if they did not exercise the option to exchange, he explained. When it was discovered that was not the case, the agency asked the corporates to be vigilant over those investments and nothing adverse occurred between that time and when the rule was passed last week. In the interim the corporate credit unions were not permitted to purchase any more. “I don’t even know if corporates would be interested in getting into strips,” Canning said. CUNA Associate General Counsel Mary Dunn observed, “This is in the same mode NCUA’s been in in terms of regulatory flexibility.” NAFCU Director of Regulatory Affairs Gwen Baker added that it’s not necessarily larger or more complex credit unions that will want to get involved in exchangeable CMOs. Building Up Business Loans Also during the board meeting, NCUA Chairman JoAnn Johnson and Board Member Debbie Matz approved the release for comment a proposed rule bringing NCUA’s member business lending regulation in step with SBA’s rules. The proposal would change NCUA’s collateral and security requirement so that credit unions can make construction and development loans under safety and soundness standards established by SBA. Federally insured credit unions could follow SBA’s less restrictive loan requirements, provided state charters have the authority under state law. “NCUA has reviewed the SBA’s loan programs in which credit unions can participate and believes they provide reasonable criteria for credit union participations and compliance within the bounds of safety and soundness,” the proposed regulation read. “Additionally, these SBA programs are ideally suited to the mission of many credit unions to satisfy their members’ business loan needs.” The changes evolved from comment letters during the overhaul of NCUA’s member business lending rule last year. However, they were outside of the scope of the amendments at that time, but the agency planned to return to it. Johnson and Matz both headed up the modernization of NCUA’s member business lending regulation. Even SBA Administrator Hector V. Barreto offered this comment for an NCUA press release: “Today’s announcement by the National Credit Union Administration is great news for America’s 25 million small business owners. Contradictory regulations that once stood as roadblocks to small business lending have now been made simple and consistent. This proposal means that credit unions will be able to help more small businesses continue to grow and create jobs.” CUNA’s Dunn also said, the member business lending proposal appears to be “a great step in the right direction.” She added that CUNA’s Federal Credit Union Subcommittee would be reviewing it further. The proposal was issued with a 60-day public comment period. The NCUA Board also considered a community charter conversion for US Federal Credit Union in Burnsville, Minn. to serve a seven county area around the Twin Cities. Even with a population of 2.6 million in Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington Counties, the conversion was approved 2-0. The credit union demonstrated community by pointing out that 25% of the population resides in Minneapolis-St. Paul, many of the seven counties’ residents work there, and it is the major trade center. US Federal Credit Union’s business plan showed how it would serve the entire community through its six credit unions offices, two proposed branches, six shared branches, ATMs and a full line of products and services. Eleven percent of the community’s population speaks a language other than English, Johnson pointed out, and many of the credit union’s employees also speak other languages. “I think it’s a model of what an application ought to look like,” Matz said. The agency also issued for a 30-day comment period a proposed regulation on the consumer’s right to opt out of affiliate information sharing for marketing purposes as required under the Fair and Accurate Credit Transactions Act. The proposal requires the opt out notice be “clear, conspicuous, and concise,” includes model language as a safe harbor for credit unions, and maintains the opt out must be effective for at least five years. As part of NCUA’s annual one-third review of its regulations, the board issued for comment a proposed rule to fix an inconsistency in its regulation regarding a change in official or senior executive officer for newly chartered or troubled credit unions. The current rule states in one section that there is a 30-day wait period before the official can begin work but another provision says they can begin right away. The proposal changes both parts to require the credit union provide the agency 30 days notice in order for it to approve the new senior employee or board or committee member. [email protected]

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