CUNA Regulatory Comment Call


January 30, 2004

Investments in Exchangeable Collateralized Mortgage Obligations
(Not a Major Rule)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposed rule, or you may access it on the Internet at the following address:

http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/Proposed12cfrParts703and704-01-22-04.pdf

BACKGROUND

The Federal Credit Union Act permits FCUs and corporate credit unions to purchase mortgage-related securities subject to rules issued by the NCUA Board. Current rule prohibit these credit unions from investing in SMBS and exchangeable CMOs that represent the interests in one or more SMBS.

DESCRIPTION OF THE PROPOSED RULE

The proposed rule will authorize all FCUs and corporate credit unions to invest in exchangeable CMOs representing interests in one or more SMBS, which includes interest-only CMOs and principal-only CMOs. Although NCUA has safety and soundness concerns with direct investments in SMBS, it does recognize that some exchangeable CMOs representing interests in one or more SMBS may be safe investments for credit unions.

To mitigate risk, the proposed rule imposes the following conditions for credit unions that invest in an exchangeable CMO representing interests in one or more IOs or POs:

The proposed rule also includes the following minor changes to the rules regarding Investment and Deposit Activities (Part 703):

QUESTIONS TO CONSIDER REGARDING NCUA’s PROPOSED RULE ON INVESTMENTS IN EXCHANGEABLE COLLATERALIZED MORTGAGE OBLIGATIONS

  • Board Member Matz at the January NCUA Board meeting requested comments on the following questions: What, if any, criteria should credit unions have to meet in order to invest in CMOs? Should a pilot program be developed first? Should there be aggregate limits placed on these investments?













  • Do you agree with the proposed rule that will allow FCUs to invest in exchangeable CMOs representing interests in one or more SMBS? Should FCUs be allowed to invest directly in SMBS?













  • Do you agree that investments in exchangeable CMOs representing interests in one or more SMBS should not raise safety and soundness concerns? Do you agree with the conditions imposed on these investments with regard to the amortization of the underlying IOs and POs and the requirement that the discount or premium of the market price to the remaining principal balance cannot exceed 20%?













  • Other comments?
















  • Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
    Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
    Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
    Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com