WASHINGTON (8/26/14)--The Credit Union National Association submitted a comment letter to the National Credit Union Administration Monday regarding two proposed rules, one on assets securitization and the other on safe harbors. While CUNA generally supports both proposals, the trade group recommends several changes and clarifications for the asset-securitization proposal, which would allow credit unions to securitize their own loans.
The NCUA's proposal would also allow credit unions to create special purpose vehicles to hold the assets collateralizing the securities, which CUNA also supports.
"Such authority would allow credit unions to create issuing entities, which are necessary to insure investors that the underlying assets are not reachable by creditors should the credit union become insolvent," the letter reads.
However, the proposal as currently constructed limits the authority of a credit union to securitize loans it has originated. CUNA believes this limits the benefits of the proposed rule, and advocates the restriction be removed.
"The ability to purchase loans for securitization will give credit unions without enough originations of a particular loan type increased opportunities to package their own loans," the letter reads. "In addition, credit unions may hold loans that they have purchased for other reasons prior to contemplating sponsoring a securitization. Credit unions should be able to include these loans in a securitization transaction for risk management."
The letter goes on to say that even if the agency does not allow other loans to be purchased for securitization, it should permit a credit union to purchase loans that it re-underwrites to be part of a securitization pool.
CUNA notes that the current proposal does not provide for those circumstances, and at a minimum, it should be clarified to state that such an action is permissible.
In addition, the rule does not address the role of credit union service organizations (CUSOs) in asset securitization. CUNA believes that loans originated by a credit union's CUSO should be included with loans the credit union securitizes through a special purpose vehicle that is not the CUSO.
"[The proposed rule] stated that securitization is not a pre-approved CUSO activity but we think it should be, both in originated loans that could be securitized by a credit union or allowing CUSOs to act as sponsors," the letter reads. "NCUA should also address whether multiple credit unions could utilize a CUSO to securitize loans and whether credit unions can participate with banks to facilitate securitizations."
CUNA's comment letter also addresses the NCUA's proposal safe harbor rule, which would provide a meaningful safe harbor irrespective of the legal characterization of the transfer. CUNA supports the NCUA's safe harbor rule as proposed.
Use the resource link below to access the proposed rule and CUNA's letter.