Government Agencies and Maturity Limits – Where Do GSEs Fall?
Lately, NAFCU has received questions from credit unions, sometimes stemming from examinations coming out of Region 5, about maturity limits for non-owner occupied homes. We blogged about some maturity limit exceptions a while ago, but unless an exception applies, the maturity limit for loans made by federal credit unions is 15 years. There are 20 year maturities and up to 40 year maturities available for some owner occupied loans, which may be the exceptions utilized most often by federal credit unions.
One exception that keeps coming up lately relates to loans that are "secured" by the "insurance or guarantee of, or with an advance commitment" to be purchased by a Federal or State government or "agency of either," here's the relevant excerpt from section 701.21(e):
(e) Insured, Guaranteed and Advance Commitment Loans. A loan secured, in full or in part, by the insurance or guarantee of, or with an advance commitment to purchase the loan, in full or in part, by the Federal Government, a State government or any agency of either, may be made for the maturity and under the terms and conditions, including rate of interest, specified in the law, regulations or program under which the insurance, guarantee or commitment is provided.
For example, some FCUs make loans under various Small Business Administration programs, which may fall into this exception. But what about government sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac?
While Fannie and Freddie are under the conservatorship of the Federal Housing Finance Agency (FHFA), NCUA has taken the position that GSEs are not "government agencies." Here is an excerpt from legal opinion letter 05-0514:
You have asked if a business purpose loan is exempt from the MBL definition under 12 C.F.R. §723.1(b)(4) if either [Freddie Mac] or [Fannie Mae] has made an advance commitment to purchase the loan in full. No, a business loan with an advance commitment from Freddie Mac or Fannie Mae is not exempt from the MBL definition because neither entity is a government agency.
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs), not federal or state agencies or political subdivisions. Fannie Mae and Freddie Mac are Congressionally-chartered, publicly-owned corporations whose shares are listed on the New York Stock Exchange. Under terms of their GSE charters, they are exempt from state and local taxation and from registration requirements of the Securities and Exchange Commission. Each firm has a back-up credit line with the U.S. Treasury: Business loans made with an advance commitment to purchase from Fannie Mae and Freddie Mac, which are not otherwise exempt, are subject to Part 723.
While this opinion letter was issued under a prior version of NCUA's rules relating to business lending, the agency took the position that Fannie and Freddie are not "government agencies," which indicates that loans made to GSEs would not be subject to the GSE's guidelines for maturity limits. Rather, unless another exception in NCUA's lending rule applied, it seems the 15 year maturity limit would apply to the loan. While the opinion letter was issued prior to FHFA conservatorship over Fannie Mae and Freddie Mac, even though the relationship between the federal government and these particular GSEs has shifted since the financial crisis, NCUA has not changed its position in more recent years.