NCUA Rule on Loan Participations
NCUA has issued a final rule, which took effect 7/25/2013, that revises the existing loan participation rule and makes some corresponding and clarifying changes to the eligible obligation rule and the rule regarding purchases and assumptions. The bulk of the changes apply to the loan participation rule and extend the coverage of this rule to federally insured credit unions, as well.
LOAN PARTICIPATION RULE, PART 701.22
Definitions, Section 701.22(a)
There are several changes and an addition to the definitions under the loan participation rule:
- A new definition has been added for an “associated borrower.” While this definition is similar to the definition of an “associated member” in the Member Business Loan rule (Part 723), this new definition provides examples of the types of parties that would be considered associated borrowers;
- The definition of “credit union organization” has been revised to clarify that it includes CUSOs invested in or loaned to by federally insured, state chartered credit unions, as well as ones invested in or loaned to by federal credit unions;
- The definitions of “loan participation” and “originating lender” have been revised to clarify that the lender that originated the loan for which participation interests are being sold must participate in the loan for the entire life of the loan. This means that only lender that initially originates a loan may sell participation interests in that loan to other lenders. This means that should a federally insured credit union experience liquidity needs it could resell its participation interest back to the originating lender, to another lender within the same participation group, or it could allow another lender to assume, in whole, its participation interest. The participating credit union could not, however, resell its participation interest to a party outside of the above options.
