NCUA Report - February 2012

Chairman’s Corner
NEW NCUA POLICY WILL KEEP MEMBERS
IN THEIR HOMES

For over a century, credit unions have striven to help members achieve the American dream. It is, no doubt, extraordinarily difficult when you find it necessary to foreclose on a home and force a family to move out.

similar modifications for other types of loans as well.

So when credit union officials told me that an NCUA policy was forcing them, in some cases, to foreclose on financially troubled members who were requesting lower payments, I committed to change that policy. Board Members Hyland and Fryzel immediately joined this effort.

Providing Relief to Credit Unions

In addition to benefiting members, the new TDR policy will provide regulatory relief for credit unions. It will allow credit unions to calculate delinquency consistent with loan contract terms on the TDR without having to immediately report the formally restructured loan as “delinquent”— and without having to track each TDR loan’s performance manually for six months.

Debbie Matz

Chairman

Manual tracking was certainly an unintended consequence of our previous policy; so I appreciate that credit union officials made the effort to make me aware of this unnecessary burden.

After careful consideration and collaboration with several top accountants in the credit union industry, the NCUA Board voted unanimously to propose a new policy on Troubled Debt Restructuring (TDR).

Keeping Their Homes

Our new TDR policy is designed to more easily allow credit unions to ensure that members who can no longer afford to make full payments on their original mortgages can keep their homes if they agree to certain modified terms with their credit union.

Among the loan workout options used by credit unions are longer loan terms and lower monthly payments. Credit unions can make

Balancing Risks

It’s important to remember that modified loans are still very high risks for default. In fact, over 16 percent of outstanding modified loans remain delinquent.

From a regulatory perspective, credit unions must strike the right balance between modifying loan terms to help troubled members continue making payments, while charging off non-performing delinquent loans that are clearly unlikely to be paid back.

Credit unions must also establish responsible policies to manage the interest rate risks that come with extending long-term loans at historically low fixed rates.

Expediting Implementation

The NCUA Board limited the comment period on our new TDR policy to 30 days (instead of the usual 60 days), so credit unions can implement the change as quickly as possible.

This relief measure is part of my ongoing Regulatory Modernization Initiative. In the spirit of President Obama’s Executive Order on Regulation and Independent Agencies, when we find that current rules are ineffective or overly burdensome, NCUA will eliminate or streamline those rules, providing that we do not sacrifice safety and soundness.