Central Liquidity Facility, 4983-4985 [E9-1748]

Agencies

• National Credit Union Administration

[Federal Register Volume 74, Number 17 (Wednesday, January 28, 2009)]
[Notices]
[Pages 4983-4985]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-1748]


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NATIONAL CREDIT UNION ADMINISTRATION


Central Liquidity Facility

AGENCY: National Credit Union Administration (NCUA).

ACTION: Public notice.

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SUMMARY: The NCUA Board has determined to change the methodology by 
which NCUA's Central Liquidity Facility (CLF) provides funding to 
credit unions needing loans. The CLF makes loans available to credit 
unions through the corporate credit union network, which is also 
involved in the servicing of the loans. The changes require 
modification to an existing agreement between the CLF and U.S. Central 
Federal Credit Union (USC) and a new assignment agreement between USC 
and the CLF. These changes will affect loans already funded and the way 
future advances by the CLF are administered. In accordance with the 
current NCUA rule pertaining to the CLF, NCUA is publishing notice of 
the changes in the Federal Register.

DATES: Effective Date: This notice is effective immediately.

FOR FURTHER INFORMATION CONTACT: Jeremy F. Taylor, Senior Capital 
Markets Specialist, at the above address or telephone (703) 518-6620 or 
Ross P. Kendall, Staff Attorney, Office of General Counsel, at the 
above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:
    A. Background. The CLF is a mixed-ownership government corporation 
within the NCUA. It is managed by the NCUA Board and is owned by its 
member credit unions. The CLF's purpose is to improve the general 
stability of credit unions by meeting their liquidity needs. The CLF 
has in place form documents that reflect the repayment, security, and 
credit reporting terms applicable to all CLF loans. The CLF makes loan 
disbursements through the corporate credit union network and relies on 
members of the corporate network to service loans it has made.
    USC is a second tier corporate credit union providing wholesale 
services to other corporate credit unions and plays a unique role in 
connection with credit provided by the CLF. The CLF relies on USC to 
serve as representative for all corporate credit unions and uses USC as 
the conduit by which funding for loans to natural person credit unions 
is provided. Loan proceeds pass through USC and go to the corporate 
credit union in which the end recipient of the funds is a member, to 
which the funds are ultimately disbursed. Loan documents, including the 
promissory note and collateral documents, are signed at each level, 
such that the natural person credit union borrower is indebted to its 
corporate, which is in turn indebted to USC, which in turn is obligated 
to repay the advance to the CLF. Corporate credit unions and USC book 
the obligations to them as assets. There are corresponding liabilities 
at each level as well, reflecting the obligation to repay the CLF.
    B. Changes. At present, loan documents evidencing the indebtedness 
of natural person credit unions to the CLF are held by their respective 
corporate credit unions and booked as assets. Credit unions measure net 
worth as a function of retained earnings divided by assets, so any 
unusual increase on the asset side of the balance sheet can have a 
negative impact on net worth, at least until the assets can provide a 
meaningful contribution to earnings. Accordingly, the NCUA Board has 
elected to collapse the lending relationship so that the indebtedness 
of the natural person credit union to the CLF runs directly to it, 
rather than through the retail and wholesale corporate credit union 
levels. Because a substantial increase in lending from the CLF may be 
anticipated in the near term, the Board believes it prudent to modify 
the lending methodology and loan documentation with respect to future 
advances.
    Restructuring the lending relationship is consistent with the 
Congressional intent that corporate credit unions serve as agent 
members for the CLF. 12 U.S.C. 1795c(b). All resulting changes in 
corporate credit union accounting for their role in these transactions 
will be accomplished in accordance with Generally Accepted Accounting 
Principles.
    Accordingly, the Board intends to change this process, both with 
respect to loans already funded and for loans to be made in the future. 
Although CLF still intends to fund loans through the corporate system, 
and still intends that the appropriate corporate will service the loans 
made to its natural person credit union members, going forward CLF will 
hold all loan interests itself and will not look to either USC or the 
appropriate corporate credit union as guarantors or obligors in respect 
of the loans. Similarly, USC will not book a loan owed by the corporate 
to it in the transaction, nor will the corporate book a loan owed by 
the natural person credit union to it. Rather, the debt will be booked 
exclusively by the CLF as its asset.
    As noted above, the CLF will continue to rely on USC as master 
servicer for all loans, and USC will continue to look to the 
appropriate corporate to service loans owed by its natural person 
credit union members. In connection with this change, CLF will require 
each corporate acting as loan servicer to subordinate any claims it 
might have in the collateral owned by natural person credit unions that 
may have been pledged to secure an advance from the corporate. The CLF 
may only fund advances on a fully secured basis. 12 CFR 725.19. Since a 
primary result of the changes discussed in this Notice will be that USC 
and the corporates will no longer act as guarantor of loans made to 
natural person credit unions, the subordination is necessary to assure 
the advances from the CLF comply with the collateral requirements in 
the rule. The CLF intends that all new loans funded after January 30, 
2009, will be handled in accordance with the new procedures.
    C. Documents. The agreements by which the changes described herein 
are accomplished take the form of an Assignment Agreement between the 
CLF and USC, by which existing loans are assigned without recourse by 
USC to the CLF, along with an amendment to the Repayment, Security and 
Credit Reporting Agreement between CLF and USC, dated September 13, 
1982, which will implement the changes for loans made after January 30, 
2009. The Board is publishing both of these agreements, as contemplated 
by Sec.  725.21 of the CLF rule. 12 CFR 725.21. The agreements are

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set out as Appendices A and B, respectively, to this Notice.\1\
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    \1\ The Board understands that, in anticipation of these 
changes, USC, as CLF's Agent Representative, has already executed a 
new CLF Agent Representative Assignment and Servicing Agreement 
(Agreement) with each corporate. The Agreement provides that loans 
representing CLF advances in existence as of December 30, 2008 and 
made through a corporate are assigned to USC. The Agreement, which 
also confirms the subordination by each corporate of its claims to 
any asset of the borrower to that of the CLF, will also apply 
prospectively. Because the CLF is not a party to this Agreement, it 
is not included as an Appendix to this Notice.

    By the National Credit Union Administration Board on January 22, 
2009.
Mary Rupp,
Secretary of the Board.

Appendix A

Assignment Agreement Between the National Credit Union Administration 
Central Liquidity Facility and U.S. Central Federal Credit Union

    This Assignment Agreement (the ``Assignment Agreement'') is between 
the National Credit Union Administration Central Liquidity Facility 
(the ``CLF'') and U.S. Central Federal Credit Union (``U.S. Central''), 
effective January 30, 2009 (the ``Effective Date'').
    Whereas, the CLF and U.S. Central have entered into that certain 
National Credit Union Administration Central Liquidity Facility 
Repayment, Security and Credit Reporting Agreement as Prescribed by the 
Facility for Agent Group Representatives, dated effective September 13, 
1982 (the ``Agreement''), as amended by amendment effective January 30, 
2009 (the ``Amended Agreement''); and
    Whereas, prior to the effective date of the Amended Agreement, the 
CLF made Facility Advances to U.S. Central as Agent Group 
Representative for the purpose of funding Agent loans by corporate 
credit union members of the U.S. Central Agent Group to their natural 
person credit union members (``Agent Loans''); and
    Whereas, on the Effective Date of this Assignment Agreement, U.S. 
Central has received an assignment from each member of the U.S. Central 
Agent Group of all Agent Loans that are not in default; and
    Whereas, U.S. Central desires to assign all such Agent Loans to the 
CLF on the Effective Date and the CLF is willing to accept that 
assignment.
    Now, Therefore, U.S. Central and the CLF agree as follows:
    1. On the Effective Date, U.S. Central hereby assigns to the CLF, 
without recourse to U.S. Central, all outstanding Agent Loans with an 
aggregate principal amount equal to the aggregate principal amount of 
Facility advances made by the CLF to U.S. Central pursuant to the 
Agreement to fund such Agent Loans and the CLF accepts that assignment 
in full satisfaction of the respective obligations of U.S. Central to 
repay the amount of the respective Facility advances pursuant to the 
Agreement.
    2. U.S. Central acknowledges and agrees that it shall act as the 
Master Servicer for the CLF of those Agent Loans pursuant to the 
Amended Agreement.

Accepted and Agreed:

U.S. Central Federal Credit Union

By:--------------------------------------------------------------------
Its:-------------------------------------------------------------------
Date:------------------------------------------------------------------

National Credit Union Administration Central Liquidity Facility

By:--------------------------------------------------------------------
Its:-------------------------------------------------------------------
Date:------------------------------------------------------------------

Appendix B

Amendment to the National Credit Union Administration Central Liquidity 
Facility Repayment, Security And Credit Reporting Agreement as 
Prescribed by the Facility for Agent Group Representatives

    This Amendment (the ``Amendment'') to the National Credit Union 
Administration Central Liquidity Facility Repayment, Security and 
Credit Reporting Agreement as Prescribed by the Facility for Agent 
Group Representatives, dated effective September 13, 1982 (the 
``Agreement''), between the National Credit Union Administration 
Central Liquidity Facility (the ``CLF'' or the ``Facility'') and 
U.S. Central Federal Credit Union (``U.S. Central'' or ``Agent Group 
Representative'') is effective as of the date listed below.
    Whereas, the CLF and U.S. Central have previously entered into 
the Agreement pursuant to which the CLF makes Facility Advances to 
U.S. Central for the purpose of funding Agent Loans by the corporate 
credit union members of the U.S. Central Agent Group to natural 
person credit unions; and
    Whereas, the CLF and U.S. Central wish to amend the Agreement to 
provide a mechanism whereby, among other things, certain Agent Loans 
may be assigned to the CLF.
    Now, therefore, the CLF and U.S. Central agree as follows:
    1. Capitalized terms used in this Amendment and not otherwise 
defined shall have the meaning as used in the Agreement or in 12 CFR 
725, as applicable.
    2. This Amendment shall be effective on the date executed by the 
CLF.
    3. Subsection (ix) of Section 3 of the Agreement is amended by 
adding the phrase ``Except as provided in Section 20,'' at the 
beginning of the subsection.
    4. Section 4 of the Agreement is amended by adding the phrase 
``Except as provided in Section 20,'' at the beginning of the 
section.
    5. Subsection (xii) of Section 5 of the Agreement is amended by 
adding the phrase ``Except as provided in Section 20,'' at the 
beginning of the subsection.
    6. Section 8 of the Agreement is amended by adding the phrase 
``Except as provided in Section 20,'' at the beginning of the 
section.
    7. Section 20 is amended by renumbering the current section as 
Section 21 and inserting a new Section 20 to read as follows:

    ``(20) Alternative Agent Loan Program. The Facility may direct, 
from time to time, that Facility advances shall be made pursuant to 
this Section 20. From and after the effective date specified by the 
Facility for Facility advances to be made subject to this Section 
20, all Facility advances made on or after the specified date shall 
be made pursuant to this Section 20, until the Facility notifies the 
Agent Group Representative of the date that Facility advances shall 
no longer be made pursuant to this Section 20.
    (i) Funds constituting Facility advances made pursuant to this 
Section 20 shall be ``Facility Funding'' and shall be transmitted 
without recourse to the Agent Group Representative, who shall, as 
agent for the Facility, transmit such funds to the central credit 
union member of the Agent Group making the Agent Loan serving as the 
basis of the request for the Facility advance, provided however, 
that the Agent Loan funded by Facility Funding and requested by the 
Agent Group Representative is assigned to the Facility.
    (ii) If any Agent Loan serving as the basis for a request for a 
Facility advance is not made, the Agent Group Representative shall 
require that the Agent member receiving such Facility Funding 
promptly return the Facility Funding with respect to such 
transaction to the Agent Group Representative who shall then 
promptly return such funds to the Facility.
    (iii) With respect to Facility Funding pursuant to this Section, 
the Agent Group Representative shall enter into an assignment and 
servicing agreement (the ``Servicing Agreement'') with each Agent 
member of the Facility who will receive Facility Funding for Agent 
Loans. The Servicing Agreement shall provide that each such Agent 
Loan is (A) automatically assigned by the Agent to the Agent Group 
Representative; and (B) subject to a representation of the Agent 
that the Agent Loan is supported by a first priority security 
interest in collateral sufficient to satisfy the requirements of 
Part 725.19 (a) of NCUA's Rules and Regulations. In addition, the 
Servicing Agreement shall also provide that claims of the Agent 
member against collateral supporting the Agent Loan shall be 
subordinate to claims of the Facility based on such Agent Loan 
against such collateral. The Agent member shall service each Agent 
Loan made by such Agent member and promptly remit all payments 
received by the Agent member on such Agent Loan or the proceeds from 
the disposition of collateral, in the event of a default on the 
Agent Loan to the Agent Group Representative who shall serve as 
master servicer (``Master Servicer'') of such Agent Loans for the 
Facility.
    (iv) Upon assignment of the Agent Loan to the Agent Group 
Representative, the Agent Group Representative hereby assigns such 
Agent Loan to the Facility and the Facility hereby accepts each such 
assignment.

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    (v) The Agent Group Representative shall service each such Agent 
Loan for the Facility as Master Servicer, and promptly remit to the 
Facility all payments of principal and interest received by the 
Master Servicer on each such Agent Loan. Unless otherwise directed 
by the Facility, the Master Servicer shall automatically, upon 
receipt, deposit all payments received by the Master Servicer 
pertaining to Agent Loans to the Facility's S019 account at U.S. 
Central.

    8. Except as modified herein, all provisions of the Agreement shall 
remain in full force and effect.
Accepted and Agreed:
U.S. Central Federal Credit Union
By:--------------------------------------------------------------------
National Credit Union Administration Central Liquidity Facility
By:--------------------------------------------------------------------
Effective Date: January 30, 2009.

[FR Doc. E9-1748 Filed 1-27-09; 8:45 am]
BILLING CODE 7535-01-P