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ALEXANDRIA, Va. – NCUA recently clarified that a loan in question did not meet the one-to-four family dwelling exception listed in the regulator’s MBL rules. According to MBL rule. 12 C.F.R. 723.1(b)(1), the exception for loans secured by a one-to-four family dwelling from the definition of an MBL only applies to a loan secured by “a dwelling that is the member’s `primary residence,’” wrote NCUA Associate General Counsel Sheila Albin in a Dec. 28, 2004 opinion letter. NCUA Region II Director Edward Dupcak referred the letter to Albin. Lee Sapira of Fleetwood, Pa.-based Sapira Law Offices, asked if a loan meets the one-to-four family dwelling exception to the MBL definition if it is secured by property that has the member’s primary residence and a separate, second building, which is rented as a residence, located on the same parcel of land. He also questioned NCUA’s characterization of the second building as “non-residential” because it houses a family. “Our understanding, however, is that this separate, second building is not the residence of the member but is used as residential rental property,” Albin wrote. “You believe a second building on the same land with the member’s primary residence should not be distinguished from a one-to-four family dwelling that houses multiple families.” Albin reiterated the MBL rule and the Federal Credit Union Act (Act) expressly limiting the exception to a single dwelling that is the member’s primary residence. Sapira also contended that, from a lending perspective, the legal and economic risks of a loan secured by a multi-family dwelling as compared with a loan secured by property with two dwellings are identical, Albin wrote. “Several years ago, the NCUA Board rejected this contention. In 1987, before the enactment of the MBL restrictions in the Act, NCUA adopted an MBL rule containing exceptions to the MBL definition for loans fully secured by a lien on a one-to-four family dwelling that was the member’s primary residence; the member’s secondary residence; or one other such dwelling owned by the member,” she explained. NCUA removed the exceptions for a member’s secondary residence and a third dwelling in 1991, and, in the final rule’s preamble, the NCUA Board stated “loans secured by a member’s primary residence are considered a lesser overall risk than loans secured by other residences. In determining whether an exemption is allowable, the credit union must determine whether the subject property is or will be the principal residence of the member-borrower.” Congress adopted the 1991 rule’s exception in the Act and it remains unchanged in NCUA’s rule, Albin wrote.

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