For purposes of this section:
Participation loan means a loan where one or more eligible organizations participates pursuant to a written agreement with the originating lender.
Eligible organizations means a credit union, credit union organization, or financial organization.
Credit union means any Federal or State chartered credit union.
Credit union organization means any credit union service organization meeting the requirements of part 712 of this chapter. This term does not include trade associations or membership organizations principally composed of credit unions.
Financial organization means any federally chartered or federally insured financial institution; and any state or federal government agency and their subdivisions.
Originating lender means the participant with which the member contracts.
Subject to the provisions of this section any Federal credit union may participate in making loans with eligible organizations within the limitations of the board of director's written participation loan policies, Provided:
No Federal credit union shall obtain an interest in a participation loan if the sum of that interest and any (other) indebtedness owing to the Federal credit union by the borrower exceeds 10 per centum of the Federal credit union's unimpaired capital and surplus;
A written master participation agreement shall be properly executed, acted upon by the Federal credit union's board of directors, or if the board has so delegated in its policy, the investment committee or senior management official(s) and retained in the Federal credit union's office. The master agreement shall include provisions for identifying, either through a document which is incorporated by reference into the master agreement or directly in the master agreement, the participation loan or loans prior to their sale; and
A Federal credit union may sell to or purchase from any participant the servicing of any loan in which it owns a participation interest.
An originating lender which is a Federal credit union shall:
Originate loans only to its members;
Retain an interest of at least 10 per centum of the face amount of each loan;
Retain the original or copies of the loan documents; and
Require the credit committee or loan officer to use the same underwriting standards for participation loans used for loans that are not being sold in a participation agreement unless there is a participation agreement in place prior to the disbursement of the loan. Where a participation agreement is in place prior to disbursement, either the credit union's loan policies or the participation agreement shall address any variance from non-participation loan underwriting standards.
A participant Federal credit union that is not an originating lender shall:
Participate only in loans it is empowered to grant, having a participation policy in place which sets forth the loan underwriting standards prior to entering into a participation agreement;
Participate in participation loans only if made to its own members or members of another participating credit union;
Retain the original or a copy of the written participation loan agreement and a schedule of the loans covered by the agreement; and
Obtain the approval of the board of directors or investment committee of the disbursement of proceeds to the originating lender.
[43 FR 51610, Nov. 6, 1978, as amended at 46 FR 38680, July 29, 1981; 46 FR 43830, Sept. 1, 1981; 47 FR 1371, Jan. 13, 1982; 47 FR 54428, Dec. 3, 1982. Redesignated and amended at 49 FR 30688, Aug. 1, 1984; 60 FR 58204, Nov. 27, 1995; 68 FR 75111, Dec. 30, 2003]