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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:00-05
Issue Date:08/13/2000

An association that has excess staffing capacity in some of its branch offices asked whether the Farm Credit Act and FCA regulations permit it to take applications for loans in communities with populations above 2,500, which are not eligible loans that the association itself may make. The Association currently takes residential mortgage applications on behalf of a non-Farm Credit System (FCS) lender in communities with populations under 2,500. These are “eligible loans” that the association itself has authority to make under the Farm Credit Act.

OGC previously concluded that an association may use its good-faith excess capacity to process eligible loans for non-FCS lenders. See OGC opinions dated April 14, 1999, January 13, 1999, and January 6, 1999. OGC concluded that such activity is permissible for ineligible loans as well. A flexible approach to the types of services an institution may perform supports the principle of avoidance of economic waste. It is more efficient and practical for the Association to be able to take applications for all types of loans that the non-FCS lender makes. Limiting loan applications to the types of loans the Association can make could unnecessarily and illogically lead to economic waste. It could diminish the value of the agreements to the Association to the extent that staff time would still be underused. In addition, the Association has sufficient procedures in place to manage any risks involved in its proposed loan application services, and the employees clearly already possess the expertise needed to fulfill the Association’s duties under the proposed contracts with the non-FCS lenders. However, if circumstances change and the association finds that it no longer maintains excess capacity “in good faith” in staffing its branch offices, it would no longer be authorized to take loan applications for non-FCS lenders under its incidental authority.

(August 13, 2000)