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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
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Protection Act.11 As applicable, servicers must comply with other federal laws regarding mortgage servicing, including the Servicemembers Civil Relief Act SCRA,12 the Fair Debt Collection Practices Act, and Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices,13 as well as any applicable state laws regarding servicing.14 To be successful, servicers need to understand the complexities in determining the value of these assets, and have effective information and compliance management systems, trained personnel, robust internal controls, as well as appropriate risk management to properly service the loans.
Although limited by the prohibition in the Investment Rule to purchase MSRs, FCUs record MSRs under two circumstances. When an FCU originates a residential mortgage loan and sells the loan to investors on the secondary market or other purchasers, the FCU
may retain the corresponding servicing rights for various reasons, including maintaining its servicing relationship with its member. Alternatively, FCUs can retain MSRs if they later sell 11 Small servicers are exempt from numerous requirements that apply to mortgage servicing activities under Regulations X and Z. See, e.g. 12
CFR 1024.17; 12 CFR 1024.37.41; 12 CFR 1026.41.
Generally, to qualify as a small servicer, a servicer must service, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer or an affiliate is the creditor or assignee. See 12
CFR 1026.41e4 for full definition. Note however, a servicer is not a small servicer under 1026.41e4iiA if it services any mortgage loans for which the servicer or an affiliate is not the creditor or assignee that is, for which the servicer or an affiliate is not the owner or was not the originator.
12 For example, the SCRA contains a strict liability provision that requires a court order before foreclosing on a mortgage during a period of military service, and for one year after a period of military service. 50 U.S.C. 3953.
13 Note, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive, or abusive act or practice. DoddFrank Act, 12 U.S.C. 5536 a1B.
14 State laws that give greater protection to consumers are not inconsistent with and are not preempted by RESPA or Regulation X. In addition, nothing in RESPA or Regulation X should be construed to preempt the entire field of regulation of the practices covered by RESPA or Regulation X, including the regulations in Subpart C with respect to mortgage servicers or mortgage servicing. 12
CFR 1024.5c and Commentary .5c11. See also the preemption of state law provision in the mortgage servicing transfer rule, which states provisions of State law, such as those requiring additional notices to insurance companies or taxing authorities, are not preempted by section 6 of RESPA or this section, and this additional information may be added to a notice provided under this section, if permitted under State law.
12 CFR 1024.33d.

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residential mortgage loans purchased from the originating lender.
Similar to other financial institutions involved in residential lending, FCUs engage in both origination and servicing activities related to residential lending.
As of June 30, 2021, approximately 3,600 FICUs held $449 billion in aggregate outstanding first lien residential mortgage loans that they originated, commonly referred to as portfolio loans, with 2,138, or 59.4
percent, of FCUs accounting for $223
billion, or 49.7 percent, of the total amount.15 An FCU does not recognize a servicing asset for a portfolio mortgage loan in which the FCU has retained servicing, because it has not undertaken an obligation to service the loan for another party.
Credit unions, similar to other lenders involved with mortgage finance, actively sell residential mortgage loans to investors on the secondary market. As of June 2021, FICUs collectively sold and serviced $270 billion of mortgage real estate loans with FCUs accounting for 53 percent of the total balance. In 2020, approximately 1,100 FICUs collectively sold $120 billion in first lien residential mortgage loans. Of the total $120 billion sold, 535 FCUs accounted for $58 billion of the total amount sold. Comparatively, approximately 1,100 FICUs collectively sold $63 billion in residential mortgage loans in 2019, with 556 FCUs accounting for $39 billion of the total amount sold.
B. Summary of the Proposed Rule The Board proposed to amend NCUAs Investment Rule to permit FCUs to purchase MSRs from other FICUs. Specifically, the proposed rule removed the current prohibition on FCUs purchasing MSRs from the Investment Rule. The Board proposed to amend 703.14 to explicitly permit an FCU to purchase MSRs from other FICUs, provided:
1 The underlying mortgage loans of the MSRs are loans the FCU is empowered to grant;
2 The FCU purchases the MSRs within the limitations of the FCUs board of directors written purchase policies; and 3 The board of directors or investment committee approves the purchase in advance.

To ensure that MSRs purchased by FCUs meet the same requirements and standards applicable to the loans that a buying FCU can make, the proposed rule allowed purchases of MSRs from FICUs only if the underlying mortgage loans from which the MSRs are derived meet the same conditions for loans the 15 NCUA

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FCU is empowered to grant. This is the same standard applicable to FCUs when buying certain eligible obligations under 701.23b.
Consistent with 701.23, the proposed rule also required that FCUs purchase MSRs within the limitations of the FCUs board of directors written purchase policies and that the FCUs board of directors or investment committee approves the purchase in advance.
The proposed rule removed the regulatory text that prohibits the purchase of MSRs in 703.16a and reserved the paragraph to correspond to the change in 703.14. The remaining provision in 703.16a, which recognizes an FCUs incidental powers authority to service the loans owned by a member engaged in mortgage lending, was transferred to part 721 as another example of a loan-related product.
While loan servicing is an incidental powers activity when performed for other credit unions under 721.3c as a correspondent service, the proposed addition to paragraph h reflected the existing authority currently found in 703.16a to provide loan-related services to members.
In addition, the Board requested comment on the following questions with the expressed intention that the final rule would incorporate appropriate safeguards and limitations as informed by the responses the Board received in response to the NPR.
Benefits: How would the proposed rule to permit an FCU to purchase MSRs from other FICUs benefit an FCUs mortgage loan servicing operations?
Compliance Risk: If FCUs purchase volumes of MSRs from different FICUs, are they prepared to ensure they have effective compliance management systems for compliance with the consumer protection-related laws and regulations that apply to mortgage loan servicers?
Capital and CAMEL Requirements:
Should the proposed rule include additional criteria for an FCU to be eligible to purchase MSRs? In particular, should the FCU be required to be well capitalized as defined in part 702? If so, similarly to the eligible obligations rule, should it be well capitalized for a minimum of the six quarters preceding its purchase of MSRs? Should the FCU
be required to have a composite CAMEL
rating of 1 or 2 with a Management rating of a 1 or 2 for at least the last two examination cycles?
Concentration Risk: Should the final rule include a limit on the amount of MSRs an FCU can hold to address concentration risk? Specifically, should a limit on the amount of MSRs held by
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