CUNA Comment Letter

Proposed Rule to Incorporate Recent NCUA OGC Legal Opinions into NCUA’s Lending Rules

January 25, 2005

Ms. Mary Rupp
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428

Dear Ms. Rupp:

The Credit Union National Association (CUNA) appreciates the opportunity to respond to NCUA’s proposed rule that will amend the agency’s lending regulations for federal credit unions to incorporate legal interpretations previously issued by NCUA’s Office of General Counsel (OGC). By way of background, CUNA is the largest credit union trade association, representing approximately 90% of our nation’s nearly 9,300 state and federal credit unions.

CUNA supports the proposal, which we feel is fully consistent with the Federal Credit Union Act and sound public policy. The changes will provide additional flexibility to federal credit unions and facilitate the ability of credit unions to serve their members’ lending needs.

Under the proposal, NCUA would revise its lending rules to provide that loans with a partial government guarantee, insurance, or advance commitment to purchase a portion of the loan could be made in accordance with the maturity and other terms and conditions set by the government program, rather than under the restrictions on loan maturities, rates of interest, security and prepayment penalties that would otherwise apply under the Federal Credit Union Act. We agree with NCUA’s analysis that this amendment is appropriate for several reasons. First, the Federal Credit Union Act does not expressly state the extent to which a loan must be guaranteed or insured in order to avoid its lending limitations. Second, this action is consistent with opinions issued by the Office of the Comptroller of the Currency for national banks. In addition, this amendment will encourage federal credit unions to grant loans through the Small Business Administration and other agencies that they would likely not make if they had to comply with the lending restrictions of the FCU Act.

The proposal would also clarify that a loan for a house trailer, recreational vehicle or boat, that is secured by a first lien and qualifies for the home mortgage interest deduction, would be eligible for a maximum maturity of 20 years. Under the Federal Credit Union Act, a loan is generally limited to having a maturity of twelve years, although certain loans, such as for mobile homes, are permitted longer maturities. The Act does not define a “mobile home,” and we believe it is fully within NCUA’s scope of authority in implementing the lending rules to define that term to include RVs, boats and trailers as mobile homes, eligible for the 20-year maturity limit.

The third change would permit loans secured by manufactured homes to be considered real estate loans and, therefore, qualify for the longer 40-year maturity limit. This change is also appropriate as loans for manufactured homes, which are permanently affixed to land, are reasonably categorized as real estate loans. Further, nothing in the Federal Credit Union Act precludes NCUA from taking this action. While mindful of safety and soundness considerations as well as other legal requirements credit unions must meet in making such loans, we believe this change may encourage credit unions to make even more home loans to lower income individuals.

CUNA is pleased to support these amendments and commends NCUA for developing these changes. Thank you for the opportunity to express our views.

Sincerely,

Mary Mitchell Dunn
Senior Vice President and Associate General Counsel