Paragon Federal Credit Union SCUP

Guy A. Messick, Esquire
Lastowska, Messick & Malady, P.C.
The Madison Building
108 Chesley Drive
Media, PA 19063-1712

Re: Paragon Federal Credit Union SCUP.

Dear Mr. Messick:

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.