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Federal Register / Vol. 86, No. 244 / Thursday, December 23, 2021 / Rules and Regulations
marketplace. A large FCU stated that FCUs that service their own mortgage loans devote significant resources to meeting the operational and compliance responsibilities associated with mortgage servicing. If these fixed costs can be spread over a larger mortgage servicing portfolio, FCUs will be able to execute their mortgage lending businesses more effectively. This commenter also noted that, while mortgage servicing is a complex undertaking, purchasing MSRs will not add incremental risk for FCUs or the National Credit Union Share Insurance Fund NCUSIF because the risks associated with this new authority are similar to those already assumed as part of mortgage lending. Rather than adding risk, MSRs will allow FCUs to better address the inherent liquidity and interest rate risks posed by mortgage lending, and such risk mitigation will better protect the NCUSIF. One commenter stated that in 2019, about $240 billion in real estate loans were sold outside of the credit union system;
consequently, removing the prohibition will promote safety and soundness by keeping revenue within the credit union system. Finally, one commenter commended the agencys timing of the rulemaking as the elongated pandemic health emergency has resulted in increased deposit flows rendering additional investment options a welcome tool.
Six commenters explicitly supported the three conditions proposed for this investment activity, finding the criteria appropriate to an FCUs purchase of MSRs from FICUs. Two commenters stated that FCUs can put proper controls in place to adequately mitigate associated risks. One of these commenters stated that it is prudent to consider certain safeguards that would apply before an FCU is eligible to purchase MSRs, depending on the complexity of the FCUs business model and staff composition.
Two commenters believe the requirements that MSR purchases be made in accordance with the board of directors written purchase policies and receive advance approval by the board or investment committee should help ensure that MSR purchases are managed and properly vetted by the FCU. One commenter, however, does not support the requirements that MSRs be purchased within the limitations set by the board of directors written purchase policies and that an FCUs board of directors or investment committee approve MSR purchases in advance.
This commenter stated that the advance approval condition would only delay transactions, create more paperwork for
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the volunteers on board of directors or investment committees, and likely not have a material impact on the decision of whether to purchase MSRs.
One commenter expressed concern that, if the underlying mortgage loans of the MSRs must be loans the FCU is empowered to grant before an FCU can purchase MSRs, this condition will limit the number of FCUs that may take advantage of the new investment authority. This commenter stated that, while the purchase of MSRs will allow FCUs the ability to market and offer their product and services to prospective members, an FCU with a closed field of membership would have a difficult time purchasing MSRs that fit into their field of membership.
This commenter requests that NCUA
clarify how an FCU with, a singlecommon bond field of membership, for example, can take advantage of this investment authority.
The Board believes that FCUs have demonstrated experience originating and servicing residential mortgage loans, including in the mitigation of the attendant operational and compliance risks of mortgage servicing. The Board agrees with the comments in support of the proposed investment authority, particularly in its benefits to the credit union system. The opportunity to purchase MSRs provides flexibility for FCUs to operate their mortgage loan businesses, as well as providing the opportunity for FICUs to sell their MSRs. As one commenter noted, a readily available control for FCUs is the use of third parties to perform valuations of servicing portfolios, not only to ensure that conformance with GAAP, but also to ensure that an independent, expert financial analysis is conducted to minimize risk through timely adjustments. For these reasons, the Board believes removing the prohibition in the Investment Rule is appropriate and consistent with safety and soundness.
In addition to the CAMELS rating requirement discussed below, the final rule adopts the three conditions provided in the NPR as proposed. To purchase MSAs from a FICU, an FCU
must meet the following requirements:
1 The underlying mortgage loans of the MSAs are loans the FCU is empowered to grant;
2 The FCU purchases the MSAs 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 final rule requires that the underlying mortgage loans to any MSAs purchased by an FCU must meet the
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same requirements and standards applicable to mortgage loans that the FCU could originate. This is the same standard applicable to FCUs when buying certain eligible obligations under 701.23b. Note that the eligible obligations rule does not require FCUs to purchase the loans of its members under 701.23b2, a rule adopted in accordance with 10714 of the Act.43
When an FCU uses this authority to buy eligible obligations, the obligation must be in accordance with the FCUs loan authority under the Act, NCUA
regulations, FCU Bylaws, and the FCUs internal policies. The loan, however, is not required to be of an obligation of a member of the FCU or a person within the FCUs field of membership.
Likewise, the authority of an FCU to purchase MSAs from other FICUs is not limited to loans made to persons in the purchasing FCUs field of membership.
In addition, like 701.23, the final rule requires that an FCU purchase MSAs within the limitations of the FCUs board of directors written purchase policies and that its board of directors or investment committee approve of the purchase in advance.
B. Compliance Risk Management In the NPR, the Board requested comment as to whether FCUs have effective compliance management systems CMS to help them to comply with the consumer protection-related laws and regulations applicable to mortgage loan servicers if they purchase MSRs from other FICUs.
A majority of commenters believe that an FCU can effectively manage its exposure to compliance risk through a comprehensive compliance program, which typically includes policies, procedures, processes, monitoring, and an audit function. While two commenters acknowledged the compliance and legal risks inherent in the acquisition of MSRs, they asserted FCUs that service mortgages they originated have long been able to manage these risks as part of their regular course of business. This includes maintaining expert compliance and legal personnel on staff, as well as engaging with outside counsel when necessary. Two commenters noted that FICUs have been selling mortgage loans to the GSEs for many years.
Consequently, their CMS would not need much expanding to comply with the consumer protections that apply to the transfer and servicing of mortgage loans. One commenter stated that, while adjustments to CMS may be warranted 43 See 77 FR 31981, 31987 May 31, 2012 and 66
FR 15055, 15059 March 15, 2001.

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