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CUs Can Now Service Residential Loans for Other CUs

WASHINGTON-The nation's credit union regulator has ruled that a federal CU may provide residential mortgage loan processing and servicing services to other institutions under a third-party contract.

The legal opinion by the National Credit Union Administration is significant because federal credit unions are generally limited in the kinds of activities they can engage in because of the potential threat it may pose to their federal tax exemption.

Many credit unions use third-party subservicing companies to process their loans on a monthly basis.

Under a proposal approved by NCUA, a larger credit union is planning to service and process mortgages for a number of smaller credit unions who would fund and close the loans to their members, according to a report in Credit Union Journal.

After the mortgage loan closing, the larger credit union would purchase the loan from the smaller credit union and then sell it to Freddie Mac with the larger credit union retaining the servicing rights.

"We conclude this would be permissible as a correspondent service and note, as required for all incidental powers activities, [federally chartered credit unions] must comply with any applicable NCUA regulations, policies and legal opinions, as well as state and federal law applicable to the activity," NCUA said in its opinion.

The opinion was provided to the Washington law firm Venable LLP, which is representing the larger credit union in the case.

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