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NCUA Issues Guidance On Loan Participation Rule
WASHINGTON (9/20/13)--The effective date for the National Credit Union Administration's new loan participation regulation is almost at hand--Sept. 23--and the agency today issued supervisory guidance on the rule.
 
In Letter to Credit Unions 13-CU-07, the agency stated, "Loan participations strengthen the credit union industry by providing a useful way for credit unions to diversify their loan portfolios, improve earnings, distribute liquidity across the industry, and balance loan demand.  However, as with any loans generated by third parties that are not federally guaranteed, loan participations come with risks."
 
In addition to the intention of the rule, the letter describes its reach and its provisions.  It also noted that NCUA examiners this week received supervisory guidance on the revised rule--including the process by which credit unions may obtain waivers.
 
The new loan participation rule features many improvements suggested by the Credit Union National Association even though CUNA did not support any new loan participation rule at this time. For instance, the original effective date was July 25, but CUNA strongly urged the agency to give credit unions more time to adequately prepare for the rule's changes.
 
The final rule sets a limit on loans from one originator of 100% of a credit union's net worth. This is up from a proposed 25% of net worth cap. Also very significant, the federal regulator approved an expanded waiver process for the single-originator limit and limits to one borrower.

CUNA urged such changes and the CUNA board emphasized credit union concerns as it worked to make the rule more practicable.
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