Compliance Blog

NAFCU’s compliance team receives questions from time to time about how long of a maturity limit may be permitted under certain circumstances. The maturity limits of loans often vary based on what may be appropriate for the type of credit being extended, especially the kind of collateral that may be securing a loan. Besides what might be a prudent lending practice, policymakers also can have an impact here. Maturity limits for loans can vary for state-chartered credit unions depending on their underlying state laws, but for federal credit unions (FCUs) the Federal Credit Union Act (FCU Act) has some limitations that can make competing challenging. 

The FCU Act sets a general 15-year maturity limit, while carving out exceptions for some loans to have up to 20-year maturity limits, and an even narrower exception for other loans to have a 30-year term or longer. Section 1757(5) of the Act sets forth the general rule that an FCU may make loans to members or to other credit unions but the maturity limit "shall not exceed 15 years." This limit also applies to loan participations.

A loan can be eligible for up to a 20-year maturity limit if:

• The loan is secured by a residential dwelling that is the residence of the member, and it is a second mortgage or nonpurchase money first mortgage, or to repair, alter or improve the dwelling; or
• The loan is secured by a mobile home used as a member’s residence, and it is a loan to purchase the mobile home that is secured by a first lien, or it is a loan to repair, alter or improve the mobile home.

A loan can be eligible for up to a 40-year maturity limit if:

• The property is a 1-to-4 family dwelling that is or will be the principal residence of the member and located within the United States, its possessions or territories;
• The loan is secured by a perfected first lien;
• The application form is a standard Federal Housing Administration (FHA), Veteran’s Administration (VA), Fannie Mae, or Freddie Mac;
• The security instrument and note is the current FHA, VA, Fannie Mae or Freddie Mac documents; and
• Certain “due-on-sales” clauses are included in the agreement.

Under both the FCU Act and NCUA’s lending regulation, FCUs can also go beyond the 15-year maturity limit when making a loan under a government program. Specifically, a FCU can offer a loan with the maturity limit allowed by the underlying government program, and this applies where the federal or state government, or agency of either, is guaranteeing the loan or has an advance commitment to purchase the loan. Note though, NCUA has taken the position that this does not include loans sold to Fannie Mae and Freddie Mac.

These maturity limits do mean sometimes FCUs are at a disadvantage compared to banks and some state-chartered credit unions. For example, if a member wants to purchase a non-owner occupied investment property, 15 years is generally the maximum maturity limit available.

While NCUA has some discretion in the FCU Act, it is somewhat limited so these maturity limits are to an extent set by Congress. NAFCU has supported past legislation over the years to give NCUA more flexibility with setting maturity limits for FCU loans. NAFCU members can find more details about provisions impacting maturity limits for FCUs in this past NAFCU Compliance Monitor article including a detailed chart indicating where the FCU Act gives NCUA discretion and FAQs.