N.D. Admin. Code 13-03-20-02

Current through Supplement No. 394, October, 2024

Section 13-03-20-02 - Authorization

1. Subject to the provisions of this section, any state-chartered credit union may participate in making loans with eligible organizations within the limitations of the board of directors' written participation loan policies, provided it meets the requirements of this subsection.

a. The purchase complies with all regulatory requirements to the same extent as if the purchasing credit union had originated the loan, including the loans to one borrower provisions in 12 CFR 723.

b. A written master participation agreement shall be properly executed, acted upon by the state-chartered credit union's board of directors, or if the board has so delegated in its policy, the investment committee, loan committee, or senior management officials and retained in the state-chartered credit union's office. The master agreement shall :

(1) Be properly executed by authorized representatives of all parties under applicable law;

(2) Be properly authorized by the credit union's board of directors or, if the board has so delegated in its policy, a designated committee or senior management official, under the federally insured credit union's bylaws and applicable law; and

(3) The original and copies be retained in the credit union's office.

c. Prior to purchase, the identification of the specific loan participation being purchased, either directly in the agreement or through a document that is incorporated by reference into the agreement, shall state:

(1) The interest the originating lender will retain in the loan to be participated. The retained interest must be at least ten percent of the outstanding balance of the loan through the life of the loan;

(2) The location and custodian for original loan documents;

(3) An explanation of the conditions under which parties to the agreement can gain access to financial and other performance information about a loan, the borrower, and the servicer so the parties can monitor the loan;

(4) An explanation of the duties and responsibilities of the originating lender, servicer, and participants with respect to all aspects of the participation, including servicing, default, foreclosure, collection, and other matters involving the ongoing administration of the loan; and

(5) Circumstances and conditions under which participants may replace the servicer.

d. The board establishes a limit on the aggregate amount of loan participations that may be purchased from any one originating lender.

e. The board establishes limits on the amount of loan participations that may be purchased by each loan type, not to exceed a specified percentage of the credit union's net worth;

f. The board establish a limit on the aggregate amount of loan participations that may be purchased with respect to a single borrower, or group of associated borrowers, not to exceed fifteen percent of the credit union's net worth, unless this amount is waived by the state credit union board and the national credit union administration; and

g. A state-chartered credit union may sell to or purchase from any participant the servicing of any loan in which it owns a participation interest.

2. An originating lender which is a state-chartered credit union shall:

a. Originate loans only to its members;

b. Retain an interest of at least ten percent of the face amount of each loan;

c. Retain the original or copies of the loan documents; and

d. Require the credit committee or loan officer to use the same underwriting standards for participation loans used for loans that are not being sold in a participation agreement unless there is a participation agreement in place prior to the disbursement of the loan. If a participation agreement is in place prior to disbursement, either the credit union's loan policies or the participation agreement shall address any variance from nonparticipation loan underwriting standards.

3. A participant state-chartered credit union that is not an originating lender shall:

a. Participate only in loans it is empowered to grant, having a participation policy in place which sets forth the loan underwriting standards prior to entering into a participation agreement;

b. Participate in participation loans only if made to its own members or members of another participating credit union, or loans made to persons located within the purchasing credt union's field of membership by eligible organizations, or financial organizations;

c. Retain the original or a copy of the written participation loan agreement and a schedule of loans covered by the agreement; and

d. Obtain the approval of the board of directors or investment committee, loan committee, or credit manager of the disbursement of proceeds to the originating lender.

N.D. Admin Code 13-03-20-02

Effective January 1, 2007; amended effective January 1, 2013.

Amended by Administrative Rules Supplement 371, January 2019, effective 1/1/2019.

General Authority: NDCC 6-01-04

Law Implemented: NDCC 6-06-06