Board Actions January 2012
NCUA BOARD SUPPORTS REGULATORY RELIEF
IN LOAN MODIFICATION PROPOSAL

The NCUA Board convened its first open meeting of 2012 at the agency’s headquarters Jan. 26 and unanimously approved three items.

Proposed Rule with Guidance
on Loan Modifications

The board voted to release for comment a rule to facilitate mortgage modifications and assist credit union members in keeping their homes. The proposed rule also includes an interpretive ruling and policy statement (IRPS) as an appendix to provide useful guidance in complying with the rule. Additionally, the IRPS addresses reporting of troubled debt restructured (TDR) loans on Call Reports.

Credit unions had previously informed NCUA that the TDR policy forced them, in some cases, to foreclose on troubled members seeking lower payments. In response, the NCUA Board has worked to change the policy. In addition to benefiting members, the new TDR policy will provide regulatory relief for credit unions.

Prudent and sound loan workouts can be an effective tool for credit unions to use to help their financially distressed members and keep them in their homes. “The proposed rule responds to the increased demand for loan workouts while it establishes minimum standards to be applied consistently throughout the industry; and it serves as a tool for managing risk to the National Credit Union Share Insurance Fund,” said NCUA Board Chairman Debbie Matz.

Credit unions will be able to take
advantage of regulatory relief with the
ability to modify loans without having
to immediately classify TDR loans as
delinquent. Additionally, credit unions
will not have to track each TDR loan’s
performance manually for six months,
which is the current requirement.

Specifically, the TDR proposal:

; Establishes consistent standards for managing loan workout arrangements that assist borrowers;

;Streamlines regulatory reporting requirements related to TDR loans by removing manual tracking and eliminating confusion between TDRs and other loan modifications; and

; Reaffirms the existing policy and practice within the credit union industry of placing loans on nonaccrual status when they reach 90 days past due.

In developing a written policy in this area, the proposed TDR guidance would allow credit union boards and management to consider similar parameters as those previously established by the Federal Financial Institutions Examinations Council (65 FR 36903).

NCUA issued the proposed TDR guidance with a 30-day comment period. “Normally we open proposals to longer comment periods to receive as many comments as possible,” said Chairman Matz, “but we are committing to implement regulatory relief on TDRs as quickly as possible.”

Tailored Interest Rate Risk Rule
Protects against Future Losses

The Board approved a final rule to require a written interest rate risk (IRR) policy and an interest rate risk management program as a requirement for insurance for all federally insured credit unions (FICUs). The final rule also includes an appendix to provide

guidance to FICUs in developing an effective IRR policy and program.

Consistent with the proposed rule, NCUA tailored the final IRR rule to apply to credit unions at most risk for interest rate shocks. The final rule will not apply to credit unions with less than $10 million in assets. FICUs with assets between $10 million and $50 million must have a written policy if first mortgage loans plus total investments longer than five years is equal to or greater than 100 percent of net worth. FICUs with assets more than $50 million must comply with the new IRR rule.

In early January, bank regulators and NCUA issued an Interagency Advisory on Interest Rate Risk Management. The advisory recognizes that when the current record-low rates finally rise, they may rise very quickly. Thus, the advisory recommends that all financial institutions implement new shock tests and other interest rate risk management measures to manage rate volatility.

“In comparing interest rate risk among financial institutions, we discovered that credit unions face far higher exposures than do banks,” said Chairman Matz. “Today, credit unions hold nearly 31 percent of their assets in long-term, fixed-rate mortgages, compared to only 18 percent at banks.” As adopted, the final rule requires affected FICUs to have an IRR policy and program that incorporates five elements: