Title 12
SECTION 701.23
701.23 Purchase, sale, and pledge of eligible obligations.
§ 701.23 Purchase, sale, and pledge of eligible obligations. Link to an amendment published at 80 FR 66706, Oct. 29, 2015. This amendment was delayed until Jan. 1, 2020, at 83 FR 55467, Nov. 6, 2018. This amendment was further delayed until Jan. 1, 2022, at 84 FR 68781, Dec. 17, 2019.This section governs a federal credit union's purchase, sale, or pledge of all or part of a loan to one of its own members, subject to a limited exception for certain well capitalized federal credit unions, where no continuing contractual obligation between the seller and purchaser is contemplated. For purchases of eligible obligations, except as described in paragraph (b)(2) of this section, the borrower must be a member of the purchasing federal credit union before the purchase is made. A federal credit union may not purchase a non-member loan to hold in its portfolio.
(a) For purposes of this section:
(1) Eligible obligation means a loan or group of loans.
(2) Student loan means a loan granted to finance the borrower's attendance at an institution of higher education or at a vocational school, which is secured by and on which payment of the outstanding principal and interest has been deferred in accordance with the insurance or guarantee of the Federal Government, of a State government, or any agency of either.
(b) Purchase. (1) A Federal credit union may purchase, in whole or in part, within the limitations of the board of directors' written purchase policies:
(i) Eligible obligations of its members, from any source, if either: (A) They are loans it is empowered to grant or (B) they are refinanced with the consent of the borrowers, within 60 days after they are purchased, so that they are loans it is empowered to grant;
(ii) Eligible obligations of a liquidating credit union's individual members, from the liquidating credit union;
(iii) Student loans, from any source, if the purchaser is granting student loans on an ongoing basis and if the purchase will facilitate the purchasing credit union's packaging of a pool of such loans to be sold or pledged on the secondary market; and
(iv) Real estate-secured loans, from any source, if the purchaser is granting real estate-secured loans pursuant to § 701.21 on an ongoing basis and if the purchase will facilitate the purchasing credit union's packaging of a pool of such loans to be sold or pledged on the secondary mortage market. A pool must include a substantial portion of the credit union's members' loans and must be sold promptly.
(2) Purchase of obligations from a FICU. A federal credit union that received a composite CAMEL rating of “1” or “2” for the last two (2) full examinations and maintained a net worth classification of “well capitalized” under part 702 of this chapter for the six (6) immediately preceding quarters or, if subject to a risk-based net worth (RBNW) requirement under part 702 of this chapter, has remained “well capitalized” for the six (6) immediately preceding quarters after applying the applicable RBNW requirement may purchase and hold the following obligations, provided that it would be empowered to grant them:
(i) Eligible obligations. Eligible obligations without regard to whether they are obligations of its members, provided they are purchased from a federally insured credit union and the obligations are either:
(A) Loans the purchasing credit union is empowered to grant; or
(B) Loans refinanced with the consent of the borrowers, within 60 days after they are purchased, so that they are loans the purchasing credit union is empowered to grant;
(ii) Eligible obligations of a liquidating credit union. Eligible obligations of a liquidating credit union without regard to whether they are obligations of the liquidating credit union's members.
(iii) Student loans. Student loans provided they are purchased from a federally insured credit union only;
(iv) Real estate-secured loans. Real estate-secured loans provided they are purchased from a federally insured credit union only;
(3) A Federal credit union may make purchases in accordance with this paragraph (b), provided:
(i) The board of directors or investment committee approves the purchase;
(ii) A written agreement and a schedule of the eligible obligations covered by the agreement are retained in the purchasers office; and
(iii) For purchases under paragraph (b)(1)(ii) of this section, any advance written approval required by § 741.8 of this chapter is obtained before consummation of such purchase.
(4) The aggregate of the unpaid balance of eligible obligations purchased under paragraphs (b)(1) and (b)(2)(ii) of this section shall not exceed 5 percent of the unimpaired capital and surplus of the purchaser. The following can be exculded in calculating this 5 percent limitation:
(i) Student loans purchased in accordance with paragraph (b)(1)(iii) of this section;
(ii) Real estate loans purchased in accordance with paragraph (b)(1)(iv) of this section;
(iii) Eligible obligations purchased in accordance with paragraph (b)(1)(i) of this section that are refinanced by the purchaser so that it is a loan it is empowered to grant;
(iv) An indirect lending or indirect leasing arrangement that is classified as a loan and not the purchase of an eligible obligation because the Federal credit union makes the final underwriting decision and the sales or lease contract is assigned to the Federal credit union very soon after it is signed by the member and the dealer or leasing company.
(5) Grandfathered purchases. Subject to safety and soundness considerations, a federal credit union may hold any of the loans described in paragraph (b)(2) of this section provided it was authorized to purchase the loan and purchased the loan before July 2, 2012.
(c) Sale. A Federal credit union may sell, in whole or in part, to any source, eligible obligations of its members, eligible obligations purchased in accordance with paragraph (b)(1)(ii) of this section, student loans purchased in accordance with paragraph (b)(1)(iii) of this section, and real estate loans purchased in accordance with paragraph (b)(1)(iv) of this section, within the limitations of the board of directors' written sale policies, Provided:
(1) The board of directors or investment committee approves the sale; and
(2) A written agreement and a schedule of the eligible obligations covered by the agreement are retained in the seller's office.
(d) Pledge. (1) A Federal credit union may pledge, in whole or in part, to any source, eligible obligations of its members, eligible obligations purchased in accordance with paragraph (b)(1)(ii) of this section, student loans purchased in accordance with paragraph (b)(1)(iii) of this section, and real estate loans purchased in accordance with paragraph (b)(1)(iv) of this section, within the limitations of the board of directors' written pledge policies, Provided:
(i) The board of directors or investment committee approves the pledge;
(ii) Copies of the original loan documents are retained; and
(iii) A written agreement covering the pledging arrangement is retained in the office of the credit union that pledges the eligible obligations.
(2) The pledge agreement shall identify the eligible obligations covered by the agreement.
(e) Servicing. A Federal credit union may agree to service any eligible obligation it purchases or sells in whole or in part.
(f) 10 Percent limitation. The total indebtedness owing to any Federal credit union by any person, inclusive of retained and reacquired interests, shall not exceed 10 percent of its unimpaired capital and surplus.
(g)(1) Conflicts of interest. No federal credit union official, employee, or their immediate family member may receive, directly or indirectly, any compensation in connection with that credit union's purchase, sale, or pledge of an eligible obligation under the provisions of § 701.23.
(2) Permissible payments. This section does not prohibit:
(i) A federal credit union's payment of salary to employees;
(ii) A federal credit union's payment of an incentive or bonus to an employee based on the credit union's overall financial performance;
(iii) A federal credit union's payment of an incentive or bonus to an employee, other than a senior management employee, in connection with that credit union's purchase, sale or pledge of an eligible obligation. This payment is permissible if the board of directors establishes a written policy and internal controls for the incentive or bonus program and monitors compliance with the policy and controls at least annually; and
(iv) Payment by a person other than the federal credit union of compensation to a volunteer official, non-senior management employee, or their immediate family member, for a service or activity performed outside the credit union provided that the federal credit union, the official, employee, or their immediate family member has not made a referral.
(3) Business associates and family members. All transactions under this section with business associates or family members not specifically prohibited by paragraph (g)(1) of this section must be conducted at arm's length and in the interest of the federal credit union.
(4) Definitions. The definitions in § 701.21(c)(8)(ii) of this part apply to this section.
(h) Additional authority. (1) A federal credit union may submit a written request to its regional director seeking expanded authority to purchase loans described in paragraph (b)(2) of this section, if it is not otherwise authorized by this section. The written request must include the following:
(i) A copy of the credit union's purchase policy;
(ii) The types of eligible obligations under paragraph (b)(2) of this section that the credit union seeks to purchase;
(iii) An explanation of the need for additional authority; and
(iv) An analysis of the credit union's prior experience with the purchase of eligible obligations.
(2) Approval process. A regional director will provide a written determination on a request for expanded authority within 60 calendar days after receipt of the request; however, the 60-day period will not begin until the requesting credit union has submitted all necessary information to the regional director. The regional director will inform the requesting credit union, in writing, of the date the request was received and of any additional documentation that the regional director requires in support of the request. If the regional director approves the request, the regional director will establish a limit on loan purchases as appropriate and subject to the limitations in this section. If the regional director does not notify the credit union of the action taken on its request within 60 calendar days of the receipt of the request or the receipt of additional requested supporting information, whichever occurs later, the credit union may purchase loans it requested under paragraph (b)(2) of this section.
(3) Appeal to NCUA Board. A Federal credit union may request the regional director to reconsider a denied request for expanded authority and/or file an appeal with the NCUA Board in accordance with the procedures set forth in subpart B to part 746 of this chapter.
(i) Temporary regulatory relief in response to COVID-19. Notwithstanding § 701.23(b), during the period commencing on April 21, 2020 and concluding on December 31, 2021, a Federal credit union may:
(1) Purchase, in whole or in part, and within the limitations of the board of directors' written purchase policies, any eligible obligations pursuant to paragraph (b)(1)(i) and (b)(2)(i) of this section without regard to whether they are loans the credit union is empowered to grant or are refinancing to ensure the obligations are ones the purchasing credit union is empowered to grant; and
(2) Purchase and hold the obligations described in § 701.23(b)(2)(i) through (iv) if the Federal credit union's CAMEL composite rating is “1,” “2,” or “3”.
[44 FR 27071, May 9, 1979, as amended at 46 FR 38680, July 29, 1981. Redesignated at 49 FR 30688, Aug. 1, 1984, and amended at 53 FR 4844, Feb. 18, 1988; 56 FR 15036, Apr. 15, 1991; 56 FR 35811, July 29, 1991; 60 FR 58504, Nov. 28, 1995; 63 FR 70998, Dec. 23, 1998; 72 FR 65442, Nov. 21, 2007; 77 FR 31990, May 31, 2012; 78 FR 37958, June 25, 2013; 82 FR 50291, Oct. 30, 2017; 84 FR 1605, Feb. 5, 2019; 85 FR 22014, Apr. 21, 2020; 85 FR 83409, Dec. 22, 2020] Effective Date Note:At 85 FR 22014, Apr. 21, 2020, § 701.23 was amended by adding paragraph (i), effective until Dec. 31, 2020. At 85 FR 83405, Dec. 22, 2020, the effective date was extended until Dec. 31, 2021.