Three final rules were approved Thursday, by unanimous votes, to authorize federal credit unions’ (FCUs) purchase of mortgage servicing assets (MSAs) from other insured credit unions, create a complex credit union liquidity ratio (CCULR) framework, and ease low-income institutions’ participation in a Treasury capital investment program.
The MSA rule was placed on the National Credit Union Administration (NCUA) Board’s Dec. 16 open meeting agenda by the panel’s two Republican members, Vice Chairman Kyle Hauptman and Board Member Rodney Hood.
All three board members, including Chairman Todd Harper, a Democrat, voted to approve all three of Thursday’s final rules:
- Investments in MSAs: Set to take effect April 1, 2022, this final rule revised the agency’s investment regulation to provide, with conditions, that an FCU with a CAMELS composite rating of 1 or 2, including a management component rating of 1 or 2, may purchase the mortgage servicing rights of loans from federally insured credit unions (FICUs). The conditions: the underlying mortgage loans of the assets are loans the FCU is otherwise empowered to grant; the purchase is made in accordance with the FCU’s written policies that address the risk of these investments and servicing practices; and the FCU’s board of directors or investment committee approves the purchase in advance. (The final rule also moves provisions authorizing FCUs to provide mortgage servicing to members engaged in the mortgage lending business from the investment reg to the incidental powers rule.)
- CCULR framework: Effective Jan. 1, 2022, the CCULR final rule creates a framework that allows “complex” credit unions opting in to maintain the CCULR instead of risk-based capital. (The risk-based capital rule, adopted in 2015 but delayed and revised since, also takes effect Jan. 1.) Under this rule, a complex credit union – one having more than $500 million in assets – may qualify to opt in to the CCULR framework if it has a minimum net worth ratio of 9%. this minimum requirement for a classification of “well capitalized” under the CCULR framework – modeled on federal banking agencies’ community bank leverage ratio (CBLR) – is higher than the 7% minimum ratio required under prompt corrective action (PCA) but lower than the 10% required under risk-based capital. The CCULR final rule also amends provisions of the 2015 risk-based capital final rule. The agency notes that based on June 30, 2021, call report data, about 70% of complex credit unions (down from 90% pre-pandemic) qualify to use the CCULR framework and would be well capitalized under a 9% calibration.
- Subordinated debt: Effective Jan. 1, Thursday’s revisions to the subordinated debt rule approved last year is aimed at easing low-income credit unions’ participation in Treasury’s Emergency Capital Investment Program (ECIP), which was created to help communities hard hit economically by the COVID-19 pandemic. The revisions amend the definition of “grandfathered secondary capital” to include any secondary capital issued to the United States government or one of its subdivisions under a secondary capital application approved before Jan. 1, 2022, regardless of the date issued. The final rule also extends the expiration of regulatory capital treatment for such secondary capital issuances to the later of 20 years from the date of issuance or Jan. 1, 2042. According to the NCUA, Treasury on Dec. 14 said 85 credit unions will receive about $2 billion in funding that can be used as secondary capital.