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Commentary

NCUA Securitization Rule Offers Opportunities

A credit union lawyer weighs in on a measure that could level the playing field with banks.

By E. Andrew Keeney | Updated on August 01, 2014
Andy KeeneyIn June, the NCUA issued a proposed regulation that would authorize federal credit unions to securitize loans that they have originated and that meet certain requirements set forth in the rule. The proposed amendment would also apply its securitization requirements to federally insured, state-chartered credit unions that are permitted to securitize their assets by state law. The NCUA is currently seeking comments on the amendment, and a final rule is expected later this year.

We believe this is a terrific opportunity for credit unions going forward. Banks have been using securitizations for quite some time, and we expect credit unions to follow suit.

Simply put, a securitization is the isolation of identifiable cash flows and sale of the assets that generate those cash flows [such as loans to credit union members] from a sponsor/credit union to a bankruptcy-remote special purpose entity. The special purpose entity uses the cash flows generated by the transferred asset to collateralize and generate principal and interest payments on debt securities it issues to investors. The investors in these debt securities generally have limited recourse only to the securitized assets and the cash flows they generate.

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