Credit Union-Sponsored Securitizations: Market Developments and Legal Considerations

Introduction

The arrival of credit unions as active participants has been a noteworthy development in the asset-backed securitization market over the past few years, and appears poised for significant growth in the immediate future. These transactions bring with them unique incentives and regulatory considerations. In this OnPoint, we’ll offer our perspective on the trajectory of, and recent developments in, this evolving market.

Growth of the Credit Union Securitization Market

Unlike their banking counterparts, credit unions have not traditionally utilized securitization to fund their lending activities, relying instead upon member deposits and retained earnings. However, in 2017, the National Credit Union Administration (the “NCUA”) opened the door for credit unions to use securitization as a source of financing in the same way that banks and specialty finance companies long have when it issued an opinion letter (the “Opinion”) affirming that federal credit unions (“FCUs”) have the authority to issue and sell securities as a power incidental to their operations under Section 107(17) of the Federal Credit Union Act (the “FCUA”). Following the issuance of the Opinion, in 2019 GTE Federal Credit Union became the first credit union to sponsor a securitization, with Dechert representing the sole bookrunner. The GTE deal was an issuance of asset-backed securities backed by auto loans like the credit union-sponsored securitizations that followed until recently.

The post-2019 period initially saw gradual growth in credit union securitization activity. Between 2019 and 2022, only four securitizations sponsored by credit unions occurred. However, 2023 marked a significant inflection point, with issuance volume increasing by approximately 167% year-over-year to $2.03 billion across seven transactions. This growth continued at a more moderate pace in 2024, with total issuance reaching nearly $2.4 billion, representing approximately a 20% increase. Cumulatively, U.S. credit unions have completed at least 25 asset-backed bond offerings totaling approximately $8.4 billion to date.

On the heels of steady credit union issuance in 2025, several recent developments augur well for substantial growth in this space.

Recent Developments

The credit union-sponsored securitization market is still maturing and within the past year there have been a number of developments that Dechert expects to have a significant impact going forward, driving growth in the credit union-sponsored securitization space. These include:

New Asset Classes

Auto loans make up a substantial portion of credit union portfolios. As of the third quarter of 2025, credit unions captured approximately 27.97% of the total auto loan market share for used vehicles and 11.67% of the total auto loan market share for new vehicles, making them a significant financial provider in this sector.¹ Given this fact, as well as the large and well-established market for auto loan securitization, we expect auto loans to remain the predominant asset class in credit union-sponsored securitizations in the immediate future.

Auto lending, however, is far from the only area where credit unions are active lenders. For example, they are estimated to hold approximately 15% of the mortgage loan market and have particular strength in home improvement loans, where they represent approximately 37% of the market, and loans related to construction, second homes, land loans and bridge financing.² Credit unions also represent a noteworthy portion of originations in the unsecured personal loan space.

For some time now, there’s been growing buzz around credit union-sponsored securitizations backed by assets including home equity lines of credit, credit card receivables, personal loans and residential loans. But prior to this year this was speculative, with no deals backed by these receivables hitting the market. That is no longer the case in 2026. On February 3, 2026, Lafayette Federal Credit Union’s closed the $459 million MRQI 2026-HI1 transaction, a securitization of home improvement loans with respect to which Dechert acted as issuer’s counsel. We expect other non-auto credit union-sponsored securitizations to follow.

Multi-Seller Programs

The back half of 2025 saw the emergence of multi-seller securitization programs designed to enable smaller credit unions to access the capital markets. These cooperative structures allow multiple credit unions to pool assets, thereby achieving economies of scale and reducing the administrative burden and costs associated with standalone securitization transactions. This represents an important step forward for smaller credit unions. While there are over 4,300 federally-insured credit unions in the United States, less than 11% of those credit unions have $1 billion or more in assets.³ Participation in these multi-seller securitizations, which to date have been sponsored by corporate credit unions, allows credit unions for which the barriers to independent issuance are too high to nevertheless meaningfully benefit from participation in the securitization markets.

More Frequent Issuers

While there are now a number of credit unions that have sponsored multiple securitizations, as a general rule, credit unions have been less frequent issuers than banks or than specialty finance companies that rely on securitization as a source of operating capital. However, we have seen a marked increase in frequency from certain repeat issuers and expect this trend to continue, and potentially accelerate, in 2026.

New Players

The roster of investment banks serving as bookrunners for credit union securitizations has expanded and evolved over time. We expect the bookrunners who have historically been most active in this space to remain key players going forward, but also anticipate that additional bookrunners will look to enter the market, particularly as the asset classes that credit unions securitize expand.

Key Considerations

The recent developments discussed above signal a maturing and increasingly robust market. However, credit unions considering entry into the securitization market, whether independently or through multi-seller platforms, must navigate a landscape that differs in meaningful ways from the securitization programs of banks and specialty finance companies. The considerations discussed below are critical to structuring successful transactions that achieve the desired regulatory capital treatment, preserve tax-exempt status, and meet investor expectations while serving the interests of credit union members.

Regulatory Framework

Credit unions are subject to oversight by the NCUA rather than the Office of the Comptroller of the Currency, state banking regulators or the governing law of their state of formation, as is the case for other market participants. The Opinion confirmed that FCUs have the authority to issue and sell securities as an incidental power under Section 107(17) of the FCUA, provided such activity: (i) is convenient or useful in carrying out the mission or business of credit unions; (ii) is the functional equivalent or logical outgrowth of activities that are part of the mission or business of credit unions; and (iii) involves risks similar in nature to those already assumed as part of the business of credit unions. The NCUA’s regulations governing credit union investments, lending limits, and capital requirements directly impact the structuring of securitization transactions. Practitioners must carefully navigate NCUA rules regarding permissible investments, member business lending limits, and the treatment of retained interests in securitized assets for regulatory capital purposes. Notably, before securitizing any assets, an FCU may be required to complete and submit an application to engage in the activity pursuant to 12 C.F.R. § 721.4. In the context of securitization, this different regulatory framework significantly impacts true sale and non-consolidation considerations.

Tax-Exempt Status

Credit unions enjoy federal tax-exempt status under Section 501(c)(14)(A) of the Internal Revenue Code. Securitization structures must be carefully designed to preserve this tax-exempt status while achieving the desired accounting and regulatory capital treatment. The use of special purpose entities and the characterization of transactions as true sales require particular attention in this context.

Field of Membership Considerations

Credit unions are limited to serving members within their defined field of membership. This constraint may impact the geographic and demographic composition of securitized loan pools, potentially affecting investor analysis of asset performance and diversification. As a practical matter, while it isn’t unusual to see state concentrations when working with banks or specialty finance companies, this is true to a greater degree with credit unions, particularly state-chartered credit unions.

CUSO Involvement

Many credit union securitization programs involve Credit Union Service Organizations (“CUSOs”) that provide aggregation, servicing, and administrative functions. The regulatory treatment of CUSOs and their relationships with sponsoring credit unions requires careful consideration in transaction structuring.

Liquidity Support Considerations

Federally insured credit unions (“FICUs”), which include both state and federally chartered credit unions, are required to secure at least one contingent federal liquidity source pursuant to NCUA Regulation 741.12. FICUs with assets of $250 million or more must have access to a federal liquidity source, which can be either the Federal Reserve Discount Window or the Central Liquidity Facility managed by the NCUA. Investors should note that the process for placing a credit union into conservatorship differs between federal and state-chartered institutions; the NCUA can place a federally chartered credit union into conservatorship at its discretion, whereas state supervisory authorities initiate conservatorship for state-chartered credit unions.

Investor Considerations

Credit union auto-loan bonds have attracted yield-seeking investors despite certain structural differences from comparable securities issued by banks or captive finance companies. To date, triple-A-rated bonds from credit union transactions have typically priced at wider spreads than those from other prime auto loan issuers. Market participants attribute these spread differentials to factors including geographic concentrations of collateral in credit union loan pools, the new and largely untested track records of many issuers, and concerns about reduced secondary market liquidity. However, investors employing buy-and-hold strategies view credit union bonds as opportunities to capture greater yields at a time when spreads are tightening across the broader market, and concerns about both liquidity and sponsor track records are expected to diminish as more credit unions enter the asset-backed bond market and establish regular issuance programs.

Risk Retention

Credit union sponsors must comply with the risk retention requirements of Section 15G of the Securities Exchange Act of 1934 and the implementing regulations promulgated thereunder, codified at 12 C.F.R. Part 244 (as applicable to credit unions regulated by the NCUA) in the same way as any other sponsors of securitizations in a given asset class. The regulations require sponsors to retain an economic interest in the credit risk of securitized assets, typically in the form of an eligible horizontal residual interest, an eligible vertical interest, or a combination thereof. Credit unions must carefully evaluate the impact of risk retention requirements on their capital positions and overall transaction economics.

In particular, a noteworthy consideration for credit unions is the regulatory capital treatment of the risk retention interests they hold. Horizontal slices—which are typically the riskiest, first-loss pieces of securitization transactions—cannot be treated as if they were whole loans held on their balance sheets, which carry far lower risk weights than such first-loss tranches. In addition, these horizontal risk-retention positions can be difficult to value and typically do not pay principal until near the end of a securitization’s life, if at all. In order to minimize the capital reserve requirements to which they are subject, in recent years some credit unions have elected vertical risk retention and sought to structure transactions in a way that allows them to receive off balance sheet treatment.

Future Outlook

The credit union securitization market has experienced substantial growth between 2019 and today and is well-positioned for continued growth in 2026 and beyond.

As with any area of securitization, there are certain potential challenges. These include regulatory capital treatment issues, rising delinquencies across the market in certain asset classes, competitive pressures from fintech lenders, captive finance companies, and other market entrants, macroeconomic conditions affecting consumer credit performance, operational considerations, as credit unions new to securitization may encounter challenges in establishing the infrastructure required for effective securitization market participation and evolving investor expectations regarding environmental, social, and governance considerations in securitization transactions. However, many of these considerations are not unique to credit unions and instead are consistent with those faced by entities sponsoring transactions in the securitization markets more broadly, particularly first time issuers. We expect this market to continue to expand, driven by several factors, including:

• the need for credit unions to access alternative funding sources beyond traditional deposits and secured federal funding facilities such as the Federal Home Loan Bank System
• balance sheet management considerations, as securitization allows credit unions to convert relatively illiquid assets into cash and make more loans to members with a given level of capital;
• competitive pressures requiring credit unions to offer loan products at rates comparable to larger financial institutions;
• the favorable credit performance of credit union-originated assets, which has attracted investor interest;
• ongoing consolidation within the credit union industry is creating larger institutions with the scale and sophistication to access the capital markets; and
• evolving NCUA regulations that may provide additional flexibility for credit union participation in securitization transactions in the future.

A 2025 survey by Wolters Kluwer of 211 credit union executives found that while only 28% were actively securitizing loans, an additional 44% were considering securitization within the next two years.⁴ Asset Backed Alert reports that some repeat issuers are looking to substantially increase their securitization output in 2026, in some cases by as much as double their prior annual output, resulting in a potential increase of $1 billion or more for the year. In addition, as discussed above, credit unions are also preparing to significantly increase their use of securitization to finance different types of consumer assets beyond auto loans.

Conclusion

Credit union-sponsored securitizations have matured into a meaningful segment of the structured finance market. As credit unions continue to seek efficient and diverse funding sources and balance sheet management tools, securitization will remain an important strategic option. Successful execution requires an understanding of the unique regulatory, tax, and structural considerations applicable to these institutions, as well as expertise with the underlying asset class being securitized. As counsel on 22 of the 25 credit union-sponsored securitizations executed to date, Dechert is uniquely positioned to advise market participants looking to access this growing segment of the structured finance market.