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An issue that was brought to the attention of the Maine CU League by New Dimensions FCU, and impacted other CUs, has reached a successful conclusion. Earlier this week, the Federal Reserve Bank of Boston (FRBB) announced that it will begin accepting electronically originated secured consumer loans in 2018. "This is the result of a lot of work on the part of the League including communications, follow-up and diligence. I appreciate the work of the League in helping to secure this outcome," stated Ryan Poulin, President of New Dimensions FCU.
In its announcement, the FRBB released a Borrower-In-Custody alert that outlined the following policy changes:
Acceptance of electronically originated secured consumer loans
FRBB will begin accepting electronically originated secured consumer loans (e.g., auto, boat, and mobile home loans) in 2018. Approval by FRBB, inclusive of a pre-inspection to assess operational controls and procedures, is required in advance of adding electronically originated loans to your pledge. We will begin to accept requests for approval to pledge these loans in 1Q18 and will process the approval requests as they are received.
Eligible electronic loans will be limited to loans that are originated electronically, i.e., loans that were originated with a wet signature and subsequently imaged and destroyed are not eligible to pledge. Additionally, if a loan note is originated electronically, all subsequent modifications must also be originated electronically, meaning a loan package must be entirely wet signed or entirely electronic to meet BIC eligibility requirements.
Policy update regarding participation and syndication loans
Per FRBB’s BIC Program Requirements, loans must be in readily negotiable, transferable or assignable form (e.g., loans may not be subject to restrictions on assignment or transfer, such as provisions requiring borrower or participant consent to an assignment or transfer), except for certain syndicated loans. Domestic syndicated commercial loans that contain contractual assignment restrictions (e.g., requiring the consent of the borrower and/or the administrative agent) may be pledged to FRBB if the loan agreement permits such loan to be pledged to the FRB.
FRBB requires all participation and syndication loans to be reviewed prior to pledging to ensure compliance with the above rule. Additionally, as both loan participation and syndication agreements frequently contain language restricting assignment/transfer, FRBB is requiring institutions that pledge commercial loan types (i.e., CRE, C&I, construction, multi-family) to identify loan participations/syndications on the monthly collateral schedule to facilitate a more in-depth review. Identification can be accomplished by adding a column(s) to the end of the collateral schedule labeled ‘Participation/ Syndication’ that will indicate if a loan is participated or syndicated.
"This was a long process and we appreciate Ryan's patience and tireless efforts in working with us. Ryan brought forth this issue, and was a great resource and an integral part in making this happen. This will benefit Maine's credit unions," explained Elise Baldacci, Vice President of Governmental Affairs for the Maine CU League.
If you are interested in obtaining approval to pledge electronically originated secured consumer loans, please reach out to Donna Lee at the FRBB or submit your request to crmops.bos@bos.frb.org.