CUNA Comment Letter

Real Estate Loan Assumptions by Non Members

October 5, 1998

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

RE: Proposed Changes to 12 CFR 701.21(g), Real Estate Loan Assumptions by Non Members

Dear Ms. Baker:

The National Credit Union Administration Board is proposing to amendments its lending regulations to include the substance of IRPS 85-3, which states that a federal credit union may permit a nonmember to assume a member's residential real estate loan in connection with the nonmember's purchase of the member's home. The proposed amendment provides that the nonmember may assume only the unpaid portion of the balance; the terms of the loan may not change and the original maturity may not be extended. In addition, the assumption will not be permitted if the original loan was made with the intent of having a nonmember assume the loan.

The Credit Union National Association strongly supports the incorporation of IRPS-85-3 into the Board's lending regulations. However, we do have one concern. The Supplementary Information provides that NCUA examiners will review assumptions by nonmembers and that federal credit unions engaging in sham transactions in which the intent of the original loan was to provide an assumption for a nonmember will be subject to enforcement action. Because "intent" is an elusive standard, we encourage the Board to include more guidance in the Supplementary Information accompanying the final regulation as to how examiners will construct a showing that a loan was originally granted with the intention it would be assumed by a nonmember.

Thank you for the opportunity to comment on the assumption of certain real estate loans by nonmembers. If you or your staff have any questions about our letter, please give me a call at 202-218-7765.

Sincerely,

Mary Mitchell Dunn
Associate General Counsel for
Regulatory Advocacy