FCA Legal Opinion Summary

Legal Opinion Summary
Topic:	Incidental Authority/Excess Capacity: May an association take residential mortgage applications on behalf of non-Farm Credit System lenders in communities with populations above 2,500?
ID Number:	01-05
Issue Date:	09/27/2001

An association has agreements with non-Farm Credit System (FCS) lenders to receive and process eligible rural housing loans on their behalf. Eligible rural housing loans are those loans that may be made by associations to non-farmers secured by moderately priced dwellings in communities with populations under 2,500. The association needs sufficient trained staff available to take and process loan applications during peak periods. These employees are fully employed at present because of the strong demand for mortgage refinancing, but they will have excess time once this period of refinancing is over. The association wishes to retain these well-trained and valuable employees so that it will be ready for the next period of high loan demand. During off-peak periods, the association would like to use these staff members to take applications, on behalf of non-FCS lenders, for residential loans that are not eligible loans that the association itself may make.

OGC previously concluded that an association may use its good-faith excess capacity to process ineligible residential loans for non-FCS lenders. See OGC opinion dated August 13, 2000 (and cases cited therein). However, if circumstances change and the association finds that it no longer maintains excess capacity "in good faith," it would no longer be authorized to take loan applications for non-FCS lenders under its incidental authority. Other System institutions also may perform residential loan application services for non-System lenders in communities with populations above 2,500 to the extent that they, like the Association, have acquired and maintain excess capacity in good faith. Because such issues are fact-specific, we expect institutions to consult with us before proceeding.