May 13, 1998
Charles H. Felker, Managing Director of Regulatory
Services
First Empire Securities, Inc.
8000 Towers Crescent Drive, Suite 1350
Vienna, Virginia 22182
Dear Mr. Felker:
You have asked whether a federal credit union
may invest in "Federal National Mortgage Association (FNMA)
Delegated Underwriting and Servicing/Mortgage-Backed Securities
(MBS/DUS)." A question arises concerning MBS/DUS because
the underlying collateral is comprised of mortgages secured by
commercial real estate. Section 703.110(c) of NCUA's regulations
states that a federal credit union may not purchase commercial
mortgage related securities. We have concluded that the prohibition
in §703.110(c) does not apply to securities issued by FNMA
and, therefore, FNMA MBS/DUS are permissible. The Office of Investment
Services agrees with this opinion.
Sections 107(7), (8), and (15) of the Federal
Credit Union Act and Part 703 of NCUA's Regulations list those
securities, deposits, and other obligations in which a federal
credit union may invest. Federal credit unions have long been
authorized to invest in mortgage related securities issued by
federal instrumentalities such as the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation.
Section 703.150 defines commercial mortgage
related securities as "a mortgage related security where
the mortgages are secured by real estate upon which is located
a commercial structure." Section 703.150 defines a mortgage
related security as:
a security as defined in Section 3(a)(41) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(41)), i.e.
a privately-issued security backed by mortgages secured by real
estate upon which is located a dwelling, mixed residential and
commercial structure, residential manufactured home, or commercial
structure.
Reading the definitions together, the prohibition
on commercial mortgage related securities only applies to those
that are privately-issued. This reading is supported by the preamble
to the proposed regulation which indicates that the NCUA Board
did not intend to include securities issued or guaranteed by the
Small Business Administration within the prohibition. 60 Fed.Reg.
61219, 61225 (Nov. 29, 1995)
Therefore, these investments are authorized
by the Federal Credit Union Act for federal credit unions and
are not prohibited by Part 703 of NCUA's Regulations. They are
a permissible investment for federal credit unions.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MJMcK:bhs
SSIC 3501
98-0506
cc: Director, Office of Investment Services