Guy A. Messick, Esquire
Lastowska, Messick & Malady, P.C.
The Madison Building
108 Chesley Drive
Media, PA 19063-1712
You have asked whether Paragon Federal Credit Union's (Paragon's)
revised small credit union loan participation program is permissible.
As described below, we have no legal objection to the revised
program.
NCUA's loan participation regulation provides that an originating
lender "means the participant with which the member contracts."
12 C.F.R. §701.22. The proposed loan participation agreement
would be between a small credit union that is the originating
lender and Paragon that is the participant. The revised loan
participation program would operate as follows: the originating
lender will approve the loan prior to disbursement using its own
underwriting standards; all loan documentation will have the originating
lender's name on it, so that it is clear to members that they
are contracting with the originating lender and not Paragon; the
loan processing will be done by either Paragon under a correspondent
agreement with the originating lender or by a CUSO; the originating
lender and Paragon will simultaneously fund the loan with the
originating lender disbursing the loan proceeds; the originating
lender will retain at least 10% of the loan; and either Paragon
or its CUSO will service the loan.
The revised loan participation program complies with my March
26, 1999, letter to Paragon.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MFR:bhs
SSIC 3000
99-0423
cc: Region II