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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
741.204 Maximum public unit and nonmember accounts, and low-income designation.

V. Regulatory Procedures

A. Background While the Act provides specific, statutory investment powers for FCUs,1
the Board has adopted regulatory prohibitions against certain investments and investment activities on the basis of safety and soundness concerns, including the purchase of mortgage servicing rights MSRs as an investment.2 In December 2020, by a vote of 21, the Board approved a notice of proposed rulemaking NPR 3 to amend the agencys Investment and Deposit Activities Rule Investment Rule, 12 CFR part 703, to explicitly permit FCUs to purchase MSRs from other federally insured credit unions FICUs based on express statutory authority that permits an FCU to sell all or a part of its assets to another credit union and to purchase all or part of the assets of another credit union. . .subject to regulations of the Board. 4 The proposed regulatory text provided the following requirements for this investment authority:

I. Introduction

c Follow the requirements of 702.414 of this chapter for any Grandfathered Secondary Capital as defined in part 702 of this chapter.
FR Doc. 202127643 Filed 122221; 8:45 am BILLING CODE 753501P

NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 703 and 721
RIN 3133AF26

Mortgage Servicing Assets National Credit Union Administration NCUA.
ACTION: Final rule.
AGENCY:

The NCUA Board Board is issuing a final rule to permit federal credit unions FCUs to purchase mortgage servicing assets MSAs, referred to as mortgage servicing rights in the proposed rule, from other federally insured credit unions subject to certain requirements. Under the final rule, FCUs with a CAMEL or CAMELS
composite rating of 1 or 2 and a CAMEL
or CAMELS Management component rating of 1 or 2, may purchase the mortgage servicing rights of loans that the FCU is otherwise empowered to grant, provided these purchases are made in accordance with the FCUs policies and procedures that address the risk of these investments and servicing practices. The Federal Credit Union Act the Act permits FCUs to purchase mortgage servicing assets under their express authority to purchase assets from other credit unions.
DATES: The final rule is effective April 1, 2022.
FOR FURTHER INFORMATION CONTACT:
Thomas Fay, Director, Capital Markets;
John G. Nilles, Senior Capital Markets Specialist, Office of Examination &
Insurance, or Ian Marenna, Associate General Counsel; Chrisanthy Loizos, Senior Trial Attorney, Office of General Counsel, or Ernestine Ward, Consumer Compliance Policy and Outreach Program Officer, Office of Consumer Financial Protection, at 1775 Duke Street, Alexandria, VA 22314 or telephone: 703 5186300, 703 518
6540, or 703 5186524.
SUPPLEMENTARY INFORMATION:

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SUMMARY:

I. Introduction II. Final Rule III. Legal Authority IV. Discussion of Public Comments Received on the Proposed Rule
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1 The underlying mortgage loans of the MSRs are loans the FCU is empowered to grant; 5
2 The FCU purchases the MSRs within the limitations of the FCUs board of directors written purchase policies; and 3 The FCUs board of directors or investment committee approves the purchase in advance.

The NPR also included several questions as to whether the rule should place additional conditions on the authority, such as capital requirements, concentration limits, or other measures to address consumer financial protection, compliance risk and liquidity risk.
Generally, when a lender originates a mortgage loan, the lender may retain the loan and the servicing function for the loan in its portfolio, sell the loan along with the MSRs to another party, or separate the MSRs from its mortgage loan and transfer either the loan or the MSRs to another party. The NPR
focused on the purchase of MSRs as assets that are distinct from their underlying mortgage loans. The Board 1 12

U.S.C. 17577, 8, 14, 15.
FR 32989 June 18, 1997; 66 FR 54168, 54169 Oct. 26, 2001; 67 FR 78996, 78997 Dec. 27, 2002; 12 CFR 703.16a.
3 85 FR 86867 Dec. 31, 2020.
4 12 U.S.C. 175714.
5 The phrase empowered to grant refers to an FCUs authority to make the type of loans permitted by the Act, NCUA regulations, FCU Bylaws, and an FCUs own internal policies. See NCUA OGC Op.
040713 Oct. 25, 2004 available at https
www.ncua.gov/files/legal-opinions/OL20040713.pdf, 76 FR 81421, 81425 December 28, 2011.
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proposed to permit FCUs to purchase MSRs by removing MSRs from the list of prohibited investments 6 in the Investment Rule and adding the purchase of MSRs from other FICUs to the rules list of permissible investments for FCUs.7
Under the current Investment Rule, MSRs are defined as a contractual obligation to perform mortgage servicing and the right to receive compensation for performing those services. Servicing is the administration of a mortgage loan, including collecting monthly payments and fees, providing recordkeeping and escrow functions, and, if necessary, curing defaults and foreclosing. 8
Mortgage loan servicers, therefore, are intermediaries between borrowers and owners of the mortgage loans; their servicing functions are subject to a servicing agreement and consumer protection laws, as applicable.9 MSRs, or mortgage servicing assets, a term used interchangeably with MSRs, are recorded in accordance with Generally Accepted Accounting Principles GAAP.10
Mortgage servicing can carry various risks. Servicers are exposed to liquidity risk if servicing agreements require the servicer to remit mortgage loan payments to the investors of sold loans even when borrowers fail to make their monthly payments. There are also operational risks related to mortgage servicing due to a myriad of statutes and regulations that protect consumers, which can expose FCUs to reputational, legal, and compliance risk. The compliance and reputation risk of a mortgage servicer can be considerable due to the high touch nature of interactions with consumers and the attendant legal requirements imposed on mortgage servicers. For example, depending on the particular servicer and its activities, servicers must comply with a variety of requirements, including the Real Estate Settlement Procedures Act RESPA and its implementing regulation, Regulation X;
the Truth in Lending Act TILA and its implementing regulation, Regulation Z;
as well as amendments to Regulations X
and Z under the Mortgage Servicing Rules promulgated by the Consumer Financial Protection Bureau, which implement provisions of the DoddFrank Wall Street Reform and Consumer 6 12

CFR 703.16.
CFR 703.14.
8 12 CFR 703.2.
9 For example, see 12 CFR 1024.17; 12 CFR part 1024, subpart C; 12 CFR 1026.20, .36, .40.41.
10 See Financial Accounting Standards Board FASB Accounting Standards Codification ASC
860Transfer and Servicing of Financial Assets.
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