[Federal Register Volume 85, Number 251 (Thursday, December 31, 2020)]
[Proposed Rules]
[Pages 86867-86871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28278]
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Proposed Rules
Federal Register
________________________________________________________________________
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.
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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 /
Proposed Rules
[[Page 86867]]
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.
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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 Conyers-Ausbrooks, 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\
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\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).
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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.
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\6\ For example, see 12 CFR 1024.17; 12 CFR part 1024, subpart
C; 12 CFR 1026.20, .36, .40-.41.
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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 third-
party 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
[[Page 86868]]
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\
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\7\ Comptroller's Handbook for Mortgage Banking, version 1 Feb.
2014 at p. 67.
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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.
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\8\ See Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 860--Transfer and Servicing of
Financial Assets.
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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.
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\9\ Small 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.
\10\ Note 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-rules-covid-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).
\11\ For 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.
\12\ Note 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).
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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\
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\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).
\20\ NCUA OGC Opinion 01-0502 (June 18, 2001) available at
https://www.ncua.gov/files/legal-opinions/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/legal-opinions/2009/credit-union-service-organization-cuso-purchase-and-servicing-non-performing-loans.
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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\
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\23\ NCUA Call Report Data as of December 31, 2018 and December
31, 2019.
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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
[[Page 86869]]
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.
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\24\ NCUA Call Report Data as of September 30, 2020.
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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\
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\25\ NCUA Call Report Data as of September 30, 2020.
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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.
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\26\ 12 U.S.C. 1766(a).
\27\ 12 U.S.C. 1751-1795k.
\28\ See 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.
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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\
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\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).
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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 Sec. 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 Sec. 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\
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\35\ NCUA OGC Op. 04-0713 (Oct. 25, 2004) available at https://www.ncua.gov/files/legal-opinions/OL2004-0713.pdf, 76 FR 81421,
81425 (December 28, 2011).
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Consistent with Sec. 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.
[[Page 86870]]
The proposed rule necessarily removes the current prohibition
against MSRs purchases imposed in Sec. 703.16(a) and reserves the
paragraph to correspond to the change in Sec. 703.14. The remaining
provision in Sec. 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 Sec. 721.3(c) as
a correspondent service, the proposed addition to paragraph (h)
reflects the existing authority currently found in Sec. 703.16(a) to
provide loan-related 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.
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\36\ As 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.
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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.
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\37\ 12 CFR 701.23(b)(2), 703.108(a)(1).
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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
[[Page 86871]]
requirements.\38\ For the purpose of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party 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.
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\38\ 44 U.S.C. 3507(d); 5 CFR part 1320.
\39\ 44 U.S.C. Chap. 35.
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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\
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\40\ Public Law 105-277, 112 Stat. 2681 (1998).
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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
0
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).
0
2. Amend Sec. 703.14 by adding paragraph (l) to read as follows:
Sec. 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.
Sec. 703.16 [Amended]
0
2. Amend Sec. 703.16 by removing and reserving paragraph (a).
PART 721--INCIDENTAL POWERS
0
4. The authority citation for part 721 continues to read as follows:
Authority: 12 U.S.C. 1757(17), 1766 and 1789.
0
5. Amend Sec. 721.3 paragraph (h) by revising the last sentence to
read as follows:
Sec. 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