… Mortgage servicing sales allowed to FCUs

(Dec. 17, 2021) Finally, the board also approved a change to its investment regulation to allow FCUs to purchase mortgage servicing rights (MSRs) from other federally insured credit unions (FICUs, including states), under certain conditions.

Under the final rule, FCUs with a CAMEL or 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 FICUs, provided that: 1) the underlying mortgage loans of the assets are loans the FCU is otherwise empowered to grant; 2) the purchase will be made in accordance with the FCU’s written policies that address the risk of these investments and servicing practices; and 3) the FCU’s board of directors or investment committee approves the purchase in advance.

NCUA cited comments submitted during the comment period that “strongly recommended” NCUA work with state regulators to address supervisory concerns regarding mortgage servicing rights in a manner that “does less harm to the dual chartering system, more effectively mitigates material risk, and improves oversight while not unnecessarily burdening credit unions.”

In the commentary of its final rule, NCUA noted that the final rule only applies to FCUs by removing its previous prohibition against purchases of MSRs. “It is not apparent to the Board that state laws applicable to FISCUs widely provide for similar investment authority, although most state regulators can grant parity for state-chartered credit unions so those institutions may engage in the same activities authorized for FCUs,” NCUA wrote. “Further, to the extent that FISCUs engage in the purchase of MSAs from other parties, the conditions on these assets under the RBC requirements in part 702 apply to all complex federally insured credit unions.”

The agency vowed to monitor such activity in state-charted, federally insured CUs and “will consider whether to extend § 703.14(l) to FISCUs under part 741, subpart B, if necessary.” The agency also noted its commitment to “continued communications with state regulators to address supervisory concerns, including those related to MSAs.”


Final Rule, Part 703, Mortgage Servicing Assets