But the agency pointed out that it is not a pre-approved activity. Before a federal credit union (FCU) securitizes any assets, it needs to complete and submit an application to NCUA.
The letter also stated that in the case of Government National Mortgage Association (Ginnie Mae) securities, the Federal Credit Union Act (FCUA) expressly authorizes this activity.
The letter noted that that an activity is an “incidental power,” even if not expressly authorized under the FCUA or NCUA’s regulations, if it:
(a) Is convenient or useful in carrying out the mission or business of credit unions consistent with the [FCUA];
(b) Is the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions; and
(c) Involves risks similar in nature to those already assumed as part of the business of credit unions.
NCUA wrote: "[I]ssuing and selling securities is consistent with the FCUA, and is convenient and useful in carrying out the mission or business of FCUs." Securitizing assets provide an FCU with an important source of liquidity to further facilitate its lending activities and makes it less dependent on share deposits to fund its member loan demand.
NCUA further noted that "[s]ecuritization can increase the amount of credit available to consumers and businesses, due to the fact that an FCU can make more loans to its members with a given level of capital. It also provides an FCU with a vehicle to transfer credit risk to investors. NCU concludes that securitization is a logical outgrowth of providing credit.
NCUA concluded that "securitization involves risks that are similar in nature to those already assumed as part of the business of credit unions."
Large federal credit unions are the credit unions most likely to take advantage of this legal opinion.
Read the letter.
Read the American Banker article (subscription required).
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