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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations the Board believes the agencys supervisory functions can sufficiently address concerns regarding MSA
concentrations.

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E. Liquidity Risk To address liquidity risk, the Board requested comment as to whether the rule should limit the amount of months an FCU servicer is obligated to remit payments to the mortgage loan owner if the borrower fails to make payments. If so, the Board also asked whether the rule should specifically limit the amount of months to no more than three to six months of payments to the mortgage loan owner after a borrower fails to make payments.
Two commenters did not see a need for the rule to address liquidity risk as suggested in the NPR. While recognizing that the FCU purchasing MSRs may face liquidity risks, the commenters stated that an FCU is aware of these risks when buying MSRs and can perform its own cost-benefit analysis. One commenter stated that FCUs that have demonstrated the ability to comply with regulations pertaining to MSRs and to handle the risk of defaulting borrowers and remitting payments to MSR
shareholders, despite being unable to collect from borrowers, should be permitted to purchase MSRs without any additional regulatory hurdles. This commenter suggests such considerations are no different from normal evaluations of safety and soundness for FCUs of any size or complexity. The other commenter stated the Board should allow the purchaser and seller to determine the extent of any liquidity protection in their agreement instead of imposing a blanket requirement for all FCUs.
Six commenters offered a range of comments regarding whether the rule should address liquidity risk. One commenter suggested the Board further examine whether limiting the number of months an FCU is obligated to remit payments to the mortgage loan owner when a borrower defaults would appropriately address any liquidity risk of the purchasing FCU. Similarly, another commenter stated while MSRs can pose liquidity risk, those risks should be evaluated, for example, the number of months an MSR is obligated to remit payments to the mortgage loan owner if the borrower is delinquent.
Likewise, in recognizing the liquidity risk in servicing arrangements, another commenter stated the final rule could limit the number of months an FCU is obligated to remit payments to the mortgage loan owner if the borrower fails to make payments.

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Two commenters explicitly supported a provision in the rule that establishes a maximum of three to six months of payments made to the mortgage loan owner when a borrower fails to make payment on the serviced mortgage. One of these commenters also suggested a standardized agreement could be used between credit unions selling and purchasing MSRs to enhance transparency between the parties.
One commenter stated that payment remittance on MSRs should follow the requirements of the GSEs as opposed to other limitations on the remittance structure. In addition, this commenter stated an FCU should perform liquidity stress tests within the scope of the organization, including in relation to MSRs.
The Board believes FCUs that have a CAMELS composite rating of 1 or 2 with a Management rating of 1 or 2, should be capable of managing the liquidity risk associated with this investment authority. The Board therefore has not included a provision in the final rule to address liquidity risk but staff will issue future guidance as appropriate.
F. Application of Rule to Federally Insured State Chartered Unions FISCUs The NPR also solicited comments on whether the safeguards and limitations in the final rule should be extended to all FICUs as a condition for obtaining and maintaining federal share insurance, in light of the risks associated with MSRs. One commenter, an advocate of additional guardrails or limitations in the final rule, supports extending the same safeguards and limitations applicable to FCUs to all FICUs. Another commenter also specifically supported extending the rule to all FICUs because the risk to the NCUSIF is the same for FCUs and FISCUs.
In addition, one commenter strongly recommended that NCUA work with state regulators to address supervisory concerns regarding MSRs 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.
The final rule applies only to FCUs by removing the NCUAs previous prohibition against the purchase of MSRs in its investment regulation. 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. Further,
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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 NCUA will monitor this activity in FISCUs and will consider whether to extend 703.14l to FISCUs under part 741, subpart B, if necessary.
Finally, the Board notes that it is committed to the agencys continued communications with state regulators to address supervisory concerns, including those related to MSAs.
V. Regulatory Procedures A. Regulatory Flexibility Act The Regulatory Flexibility Act requires the NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities.54 For purposes of this analysis, the NCUA considers small credit unions to be those having under $100 million in assets.55 The rule imposes no requirement or costs on small entities and only expands the types of investments an FCU can make by including MSAs. The conditions in the final rule for a threshold CAMELS rating and written investment policies are prerequisites for other investment activities, therefore the Board does not expect these requirements to entail substantial regulatory burden.
Accordingly, the associated cost is minimal. The NCUA certifies the rule will not have a significant economic impact on a substantial number of small credit unions.
B. Paperwork Reduction Act The Paperwork Reduction Act of 1995
PRA applies to rulemakings in which an agency creates a new or amends existing information collection requirements.56 For the purpose of the PRA, an information collection requirement may take the form of a reporting, recordkeeping, or a thirdparty disclosure requirement. The rule does not contain any new information collection requirements that require approval by OMB under the PRA.
Current recordkeeping requirements are covered under OMB control number 31330133.
C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to 54 30

5 U.S.C. 603a.
Ruling and Policy Statement 032, 68 FR 31949 May 29, 2003 as amended by Interpretive Ruling and Policy Statement 131, 78
FR 4032 Jan. 18, 2013.
56 44 U.S.C. 3507d; 5 CFR part 1320.
55 Interpretive
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