[Federal Register Volume 85, Number 234 (Friday, December 4, 2020)]
[Proposed Rules]
[Pages 78269-78277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25988]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 741
[NCUA 2020-0114]
RIN 3133-AF30
Capitalization of Interest in Connection With Loan Workouts and
Modifications
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: The NCUA Board (Board) seeks public comment on a proposed rule
to amend its regulations by removing the prohibition on the
capitalization of interest in connection with loan workouts and
modifications. The Board has determined that the current prohibition on
authorizing additional advances to finance unpaid interest may be
overly burdensome and, in some cases, hamper a federally insured credit
union's (FICU's) good-faith efforts to engage in loan workouts with
borrowers facing difficulty because of the economic disruption that the
COVID-19 pandemic has caused. Advancing interest may avert the need for
alternative actions that would be more harmful to borrowers. The
proposed rule would establish documentation requirements to help ensure
that the addition of unpaid interest to the principal balance of a
mortgage loan does not hinder the borrower's ability to become current
on the loan. The proposed change would apply to workouts of all types
of member loans, including commercial and business loans. The Board has
also taken this opportunity to make several technical changes to the
Appendix to improve its clarity and update certain references. For the
convenience of readers, the Board is republishing the Appendix in its
entirety so that the changes may be viewed in the context of the full
document.
DATES: Comments must be received on or before February 2, 2021.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF30, by any of the following methods (Please send comments by one
method only):
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments for NCUA 2020-0114.
Fax: (703) 518-6319. Include ``[Your Name]--Comments on
``Proposed Rule: Capitalization of Interest in Connection with Loan
Workouts and Modifications'' in the transmittal.
Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal (http://www.regulations.gov) as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. Due to social distancing measures in effect, the
usual opportunity to inspect paper copies of comments in the NCUA's law
library is not currently available. After social distancing measures
are relaxed, visitors may make an appointment to review paper copies by
calling (703) 518-6540 or emailing OGCMail@ncua.gov.
FOR FURTHER INFORMATION CONTACT: Scott Neat, Associate Director of the
Office of Examination and Insurance, at (703) 518-6360; and Ariel
Pereira and Gira Bose, Staff Attorneys, Office of General Counsel, at
(703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
II. Legal Authority
III. Summary of the Proposed Rule
IV. Regulatory Procedures
I. Background
A. May 2012 Adoption of the Loan Workout and Accrual and TDR
Requirements
In May 2012, the Board published a final rule on loan workout
policies and monitoring requirements that applies to all FICUs. The
rule also established requirements for nonaccrual policies, and for
regulatory reporting of troubled debt restructurings (TDRs).\1\ The
Board noted that the May 2012 final rule was similar to guidance set
forth in an interagency policy statement issued by the banking agencies
of the Federal Financial Institutions Examination Council (FFIEC) on
June 12, 2000,\2\ though the NCUA did not join the agencies in issuing
the statement.
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\1\ 77 FR 31993 (May 31, 2012).
\2\ FFIEC, Uniform Retail Credit Classification and Account
Management Policy, 65 FR 36903 (June 12, 2000).
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The May 2012 final rule, codified in Appendix B to Part 741 of the
NCUA's
[[Page 78270]]
regulations, established four requirements.
1. The final rule required that FICUs have written policies that
address loan workouts and nonaccrual practices required under Sec.
741.3, Criteria. In Appendix B, the Board also required that such
policies prohibit a credit union from authorizing additional advances
to a borrower to finance unpaid interest (capitalization of interest)
and credit union fees. Credit unions are permitted to make such
advances to cover third-party fees, excluding credit union commissions,
such as force-placed insurance and property taxes. This requirement is
similar to the expectation established in the June 2000 interagency
statement of policy cited above, except that the interagency statement
provided that a bank's policies should prohibit such advances but did
not state that the policies must prohibit them.
2. The final rule standardized an industry-wide practice by
requiring that FICUs cease to accrue interest on all loans at 90 days
or more past due, subject to a few exceptions.
3. The final rule required that a FICU maintain member business
workout loans in a nonaccrual status until it receives six consecutive
payments under the modified terms.
4. The final rule required that FICUs calculate and report TDR loan
delinquency based on restructured contract terms, rather than the
original loan terms.
In adopting the May 2012 final rule, the Board stated its intention
to provide regulatory relief to FICUs while instituting countervailing
controls and clarifying regulatory expectations. In the 2012
rulemaking, the Board acknowledged the need to balance appropriate loan
workout programs with safety and soundness considerations. The Board
noted that such considerations include the ability to identify
deterioration in the quality of the loan portfolio and delayed loss
recognition in light of the high degree of relapse into past due
status.
B. COVID-19 Pandemic and FFIEC Statement on Loan Accommodations
In light of the challenges and economic disruption caused by the
COVID-19 pandemic, the Board is proposing an amendment to the
requirement in the May 2012 final rule that relates to the
capitalization of interest.\3\ As the NCUA and other member agencies of
the FFIEC noted in an August 2020 statement on loan accommodations, the
COVID-19 pandemic has had a significant adverse impact on consumers,
businesses, financial institutions, and the economy.\4\
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\3\ The coronavirus disease 2019 outbreak was declared a
national emergency under Proclamation 9994, 85 FR 15337 (Mar. 18,
2020).
\4\ Joint Statement on Additional Loan Accommodations Related to
COVID-19, available at https://www.ncua.gov/files/press-releases-news/joint-statement-additional-loan-accommodations.pdf.
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To address such impacts, the Coronavirus Aid, Relief, and Economic
Security (CARES) Act \5\ provided several forms of relief to businesses
and borrowers, and some states and localities have provided similar
credit accommodations. Additionally, many financial institutions have
voluntarily offered borrowers other credit accommodations.
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\5\ Public Law 116-136, 134 Stat. 281 (Mar. 27, 2020).
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The NCUA, along with the other FFIEC members, has encouraged
financial institutions to work prudently with borrowers who are unable,
or may become unable, to meet their contractual payment obligations as
a result of the COVID-19 pandemic.\6\ Specifically, the NCUA and the
other FFIEC members have stated that they view loan accommodations as
positive actions that can mitigate adverse effects on borrowers caused
by the COVID-19 pandemic. For borrowers experiencing financial
hardship, a prudently underwritten and appropriately managed loan
modification, consistent with safe and sound lending practices, is
generally in the long-term best interest of both the borrower and the
credit union. Such modifications may allow a borrower to remain in
their home or a commercial borrower to maintain operations due to
external circumstances, and can help credit unions minimize the costs
of default and foreclosures.
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\6\ See Interagency Statement on Loan Modifications and
Reporting for Financial Institutions Working with Customers Affected
by the Coronavirus (Revised), (Apr. 7, 2020) and FFIEC's Joint
Statement on Additional Loan Accommodations Related to COVID-19
(Aug. 3, 2020).
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While some borrowers will be able to resume contractual payments at
the end of an accommodation, others may be unable to meet their
obligations due to continuing financial challenges. In light of these
challenges, the NCUA and the other FFIEC members encouraged financial
institutions to consider prudent accommodation options that are based
on an understanding of a borrower's credit risk. Accommodations must
also be consistent with applicable laws and regulations and ease cash
flow pressures to improve the affected borrower's ability to service
debt, which improves a financial institution's ability to collect on
its loans. The agencies noted that such arrangements also may reduce
financial stress on borrowers by decreasing delinquencies or other
adverse consequences. Imprudent relief practices by a lender can
adversely affect borrowers and expose financial institutions to
increases in credit, compliance, reputational, operational, and other
risks. Additionally, imprudent relief practices present risks to a
financial institution's capital position.
C. Capitalization of Unpaid Interest
During development of the interagency guidance discussed above, the
Board determined that the prohibition in the May 2012 final rule on the
capitalization of interest might be overly burdensome and, in some
cases, possibly hamper a FICU's good-faith efforts to engage in loan
workouts with borrowers facing difficulty because of the economic
disruption caused by the COVID-19 pandemic.
Banks are not subject to the same prohibition on capitalizing
interest (the banking agencies have not adopted an absolute standard
equivalent to the rule that the Board codified in 2012). The banking
agencies have addressed capitalization of interest through guidance,
letters, and Call Report instructions, none of which strictly prohibit
the capitalization of interest when modifying loans. Instead, the
banking agencies examine these practices for safety and soundness
during the course of their supervision. As a result, FICUs have fewer
options when working with their member borrowers, as compared to banks.
Further, the government-sponsored enterprises (GSEs), Fannie Mae
and Freddie Mac, have had a long-standing policy supporting the ability
of servicers to capitalize interest and fees as part of a prudent
modification program. When FICUs originate certain loans, they often do
so with the intent of selling to the secondary market for liquidity or
other strategic purposes, but many FICUs may retain servicing rights
after the sale of the loan. The GSEs are frequent investors in FICU-
originated loans. After such a sale, if a member with a loan sold by a
FICU begins experiencing financial difficulty and needs assistance in
the form of a modification, capitalization of interest is permitted
within a loan workout by the GSE that now holds the loan. However, for
loans retained by the FICU, the borrower would not get the benefit of
interest capitalization upon a loan workout due to the prohibition
currently in the Appendix. This contrast
[[Page 78271]]
with the GSEs' policy results in inequitable treatment of members
within the same FICU, which jeopardizes the integrity of the
cooperative membership base.
For the reasons described in the preceding discussion, the Board
believes the current rule's prohibition on the capitalization of
interest limits a FICU's options to implement a mutually beneficial
solution that addresses the potential financial challenge of their
members when the forbearance period ends. As discussed in greater
detail in the Summary of the Proposed Rule, the Board proposes to
remove the prohibition on capitalization of interest from Appendix B.
As noted, the Board's reconsideration was partially prompted by the
economic impact of the COVID-19 pandemic and related developments.
Other considerations described above, such as parity with the treatment
of interest capitalization by banks, have also factored in the Board's
determination. Accordingly, the Board believes it is appropriate to
propose amending Appendix B to make capitalization of interest a
permissible option indefinitely. Despite proposing this change, the
Board underscores that Appendix B currently requires several safety and
soundness and consumer protection-oriented measures that would also
apply to this practice. Furthermore, capitalization of interest is not
an appropriate solution in all cases and, as the Appendix currently
provides, a FICU should consider and balance the best interests of the
credit union and the borrower. In addition, the Board proposes to add
several consumer protection and safety and soundness requirements to
the Appendix for FICUs that capitalize interest in connection with loan
workouts.
II. Legal Authority
The Board issues this proposed rule pursuant to its authority under
the Federal Credit Union (FCU) Act.\7\ Under the FCU Act, the NCUA is
the chartering and supervisory authority for FCUs and the Federal
supervisory authority for FICUs.\8\ The FCU Act grants the NCUA a broad
mandate to issue regulations that govern both FCUs and FICUs. Section
120 of the FCU Act is a general grant of regulatory authority and
authorizes the Board to prescribe rules and regulations for the
administration of the FCU Act.\9\ Section 209 of the FCU Act is a
plenary grant of regulatory authority to the NCUA to issue rules and
regulations necessary or appropriate to carry out its role as share
insurer for all FICUs.\10\ Accordingly, the FCU Act grants the Board
broad rulemaking authority to ensure that the credit union industry and
the National Credit Union Share Insurance Fund remain safe and sound.
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\7\ 12 U.S.C. 1751 et al.
\8\ 12 U.S.C. 1752-1775.
\9\ 12 U.S.C. 1766(a).
\10\ 12 U.S.C. 1789(a)(11).
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III. Summary of the Proposed Rule
A. Capitalization of Interest
The Board is proposing to amend a prescriptive requirement in its
regulations by amending Appendix B of Part 741 to remove the
prohibition on the capitalization of interest in connection with loan
workouts and modifications. The proposed change would apply to workouts
of all types of member loans, including commercial and business loans.
The NCUA also notes that--consistent with the scope of Appendix B--the
proposed change addresses the capitalization of interest in connection
with loan modifications. The proposed rule, however, does not address
the capitalization of interest that may occur in other contexts. The
Board notes that banks frequently include interest capitalization as
one of several components in a loan restructuring to mutually benefit
the lender and the borrower. The Board expects that FICUs will follow
suit, and provide borrowers with the option to capitalize interest
along with other loan modification options, such as the lowering of
loan payments or the interest rate, extending the maturity date,
partial principal or interest forgiveness and other modifications.
The proposed rule would add a definition of capitalized interest to
the Glossary of Appendix B. For the purposes of this rulemaking,
capitalization of interest constitutes the addition of accrued but
unpaid interest to the principal balance of a loan. This differs from
ceasing to accrue interest on past-due loans, generally when the loan
reaches 90 days past due.
The rule will continue to provide that a credit union may, in no
event, authorize additional advances to finance credit union fees and
commissions. FICUs will be permitted to continue to make advances to
cover third party fees to protect loan collateral, such as force-placed
insurance or property taxes. The Board believes that maintaining the
prohibition on the capitalization of credit union fees is an important
consumer protection feature of the rule for member borrowers.
Prior to 2012, NCUA guidance contemplated capitalization of
interest and fees as one of many options available to credit unions to
modify a loan to accommodate a borrower's circumstances. In the 2012
final rule, the Board adopted a requirement that a FICU's loan workout
policy prohibit additional advances to finance unpaid interest and
fees. The final rule did allow such advances to finance third-party
fees, which was in response to a request by a commenter on the proposed
rule. The 2012 final rule did not explain the reasons this practice was
prohibited. The Board has reconsidered the conclusion from the 2012
final rule and proposes to remove the prohibition on the capitalization
of interest because, when used appropriately, capitalization of
interest may be in the best interests of both a FICU and the borrower.
Accordingly, the proposed rule would delete this prohibition from
Appendix B.
The Board underscores that in proposing to remove this prohibition,
it would maintain several requirements that apply to all loan workout
policies in Appendix B. For example, the Appendix establishes the
expectation that loan workouts will consider and balance the best
interests of the FICU and the borrower, including consumer financial
protection measures. Ensuring the best interest of the borrower
prohibits predatory type lending practices such as including loan terms
that result in negative amortization. In addition, a FICU's policy must
establish limits on the number of modifications allowed for an
individual loan. Further, the policy must ensure that a FICU make loan
workout decisions based on a borrower's renewed willingness and ability
to repay the loan.
If a FICU restructures a loan more frequently than once a year or
twice in five years, examiners will have higher expectations for the
documentation of the borrower's renewed willingness and ability to
repay the loan. The current Appendix also sets forth several
supervisory expectations relating to multiple restructurings, stating
that examiners will request validation documentation regarding
collectability if a FICU engages in multiple restructurings of a loan.
The current Appendix also requires that a FICU maintain sufficient
documentation to demonstrate that the FICU's personnel communicated the
new terms with the borrower, that the borrower agreed to pay the loan
in full under the new terms and, most importantly, the borrower has the
ability to repay the loan under any new terms.
These requirements and expectations, which currently apply to
FICUs' loan workout policies, would apply equally if a FICU adopts a
practice of
[[Page 78272]]
capitalizing interest in connection with loan workouts. In addition, in
light of the potential for this practice to have a detrimental effect
on borrowers if executed inappropriately, and to mask the true
financial status of a loan and a credit union's financial statements,
the Board proposes to add requirements to the Appendix to apply to
FICUs that engage in this practice.
Modifications of loans that result in capitalization of unpaid
interest are appropriate only when the borrower has the ability to
repay the debt in accordance with the modification. At a minimum, if a
FICU's loan modification policy permits capitalization of unpaid
interest, the policy must require each of the following:
1. Compliance with all applicable consumer protection laws and
regulations, including, but not limited to, the Equal Credit
Opportunity Act, the Fair Housing Act, the Truth In Lending Act, the
Real Estate Settlement Procedures Act, the Fair Credit Reporting Act,
and the prohibitions against the use of unfair, deceptive or abusive
acts or practices contained in the Consumer Financial Protection Act of
2010. (The Board notes that FICUs are also expected to comply with
applicable State consumer protection laws that, in some instances, may
be more stringent than Federal law, prohibiting, for example, the
charging of interest on interest.)
2. Documentation that reflects a borrower's ability to repay, a
borrower's source(s) of repayment, and when appropriate, compliance
with the FICU's valuation policies at the time the modification is
approved.
3. Providing borrowers with documentation that is accurate, clear,
and conspicuous and consistent with Federal and state consumer
protection laws.
4. Appropriate reporting of loan status for modified loans in
accordance with applicable law and accounting practices. The FICU shall
not report a modified loan as past due if the loan was current prior to
modification and the borrower is complying with the terms of the
modification.
5. Prudent policies and procedures to help borrowers resume
affordable and sustainable repayments that are appropriately
structured, while at the same time minimizing losses to the credit
union. The prudent policies and procedures must consider:
i. Whether the loan modifications are well-designed, consistently
applied, and provide a favorable outcome for borrowers.
ii. The available options for borrowers to repay any missed
payments at the end of their modifications to avoid delinquencies or
other adverse consequences.
6. Appropriate safety and soundness safeguards to prevent the
following:
i. Masking deteriorations in loan portfolio quality and
understating charge-off levels;
ii. Delaying loss recognition resulting in an understated allowance
for loan and lease losses account or inaccurate loan valuations;
iii. Overstating net income and net worth (regulatory capital)
levels; and
iv. Circumventing internal controls.
B. Technical Updates to Appendix B
The Board has also taken this opportunity to make several technical
changes to the Appendix to improve its clarity and update certain
references. For example, the Board is proposing several updates to
references to the NCUA's or other guidance in the Appendix, such as
guidance or standards issued by other federal banking agencies or the
Financial Accounting Standards Board (FASB). These changes are intended
to provide more current information, and are not intended to entail
substantive policy changes within the Appendix.
In May 2014, FASB issued an accounting standards update for revenue
recognition (ASU 2014-09) which replaced the cost recovery method of
income recognition in ASC 605-10-25-4 with transition guidance found in
ASC 606--Revenue from Contracts with Customers. The (2012) Appendix
made reference to the cost recovery method of income recognition with
citation in the Glossary. As this has been superseded by ASC 606, the
Board eliminated this reference in the Appendix and emphasizes that
accrual of interest income ceases on a financial asset when full
payment of principal and interest in cash is not expected.
In addition, to conform to the terminology that the Board adopted
in 2016 in amending part 723,\11\ the Board proposes to update
references to member business loans to also refer to commercial loans.
These changes are not intended to create new requirements or standards.
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\11\ 81 FR 13530 (Mar. 14, 2016).
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The Board also proposes to make terminology in the Appendix
consistent with its purpose. The Appendix sets forth requirements for
FICU policies relating to loan workouts, TDRs, and nonaccrual status.
In several instances, the current Appendix uses the word ``should''
when referring to necessary elements of a FICU's policies or refers to
the Appendix as ``guidance'' or an interpretive ruling and policy
statement. To make the purpose and effect of the Appendix clearer, the
Board proposes using mandatory language where appropriate and
eliminating references to the Appendix as ``guidance.''
Finally, the Board proposes to clarify several statements of the
Appendix to make it more consistent with plain language principles. The
Board does not intend to make any substantive changes in these
amendments. The Federal Register's publication procedures require the
Board to print the entire revised Appendix in the amendatory
instructions of this proposed rule. To help commenters follow the
proposed changes, the NCUA will post a document on its website that
shows the specific proposed changes in redline or strikethrough form.
C. NCUA Questions for Comment
The NCUA is interested in all aspects of the interest
capitalization issue. In addition to offering your comments on any
aspect of this proposed rule, please provide your input on the
following questions:
1. What was your experience or level of use with interest
capitalization before the agency prohibited the practice in 2012
pursuant to Appendix B?
2. How likely are you to incorporate interest capitalization as a
mortgage modification tool if permitted by the agency?
3. What risks do you foresee, if any, to either the credit union or
the borrower in a mortgage modification that includes capitalization of
interest?
4. When credit unions originate certain loans, they often do so
with the intent of selling to the secondary market. The GSEs are
frequent investors in credit union originated loans. Subsequent to
sale, if a member with a loan sold by a credit union begins
experiencing financial difficulty and needs assistance in the form of a
modification, capitalization of interest is permitted within a loan
workout by the GSE who now holds the loan. However, Fannie Mae does not
permit interest capitalization prior to sale and Freddie Mac does so
only under certain conditions. How would this limitation on
capitalizing interest prior to sale to a GSE impact your willingness or
ability to offer interest capitalization on a loan?
5. In light of the fact that adding unpaid interest to the
principal balance of a mortgage loan could potentially be detrimental
to a member's ability to become current on the loan, the NCUA is
proposing to add a number of consumer protection guardrails to Appendix
B. We invite comments on these guardrails. In addition, what other
[[Page 78273]]
documentation, disclosure, or other consumer protection features, if
any, should the NCUA require before permitting capitalization of
interest as a loan modification tool? Are the consumer protections that
apply to other types of loan modification sufficient to protect
borrowers who receive interest capitalization or should the agency
consider any other protections to counter any risks caused specifically
by interest capitalization?
6. The proposed rule continues to provide that a credit union may,
in no event, authorize additional advances to finance credit union fees
and commissions. Should the Board authorize the capitalization of such
fees and commissions at the final rule stage? Why or why not? Depending
on the information obtained through the rulemaking, the Board may
consider making this change in the final rule.
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act \12\ generally requires that, in
connection with a notice of proposed rulemaking, an agency prepare and
make available for public comment an initial regulatory flexibility
analysis that describes the impact of a proposed rule on small
entities. A regulatory flexibility analysis is not required, however,
if the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities (defined for
purposes of the Regulatory Flexibility Act to include FICUs with assets
less than $100 million) and publishes its certification and a short,
explanatory statement in the Federal Register together with the rule.
The proposed rule would allow FICUs to capitalize unpaid interest when
working with borrowers. The proposed rule is not expected to increase
the cost burden for FICUs. Accordingly, the NCUA certifies that the
proposed rule will not have a significant economic impact on a
substantial number of small credit unions.
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\12\ 5 U.S.C. 603(a).
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency by rule creates a new paperwork burden on regulated
entities or modifies an existing burden.\13\ For purposes of the PRA, a
paperwork burden may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement, referred to as an information
collection. The NCUA proposes to amend Appendix B of Part 741 to remove
the prohibition on the capitalization of interest in connection with
loan workouts and modifications and to allow FICUs to capitalize unpaid
interest when working with borrowers. Currently, all FICUs are required
to retain and maintain a written loan policy; of which 500 FICUs are
estimated to take four hours annually to retain and maintain enhanced
records related to loan workout activity. NCUA anticipates a 50 percent
increase in the number of these respondents due to the amendments in
this proposed rule. Information collection requirements prescribed by
Appendix B to 741 are currently approved under OMB control number 3133-
0092. This revision of a currently approved collection would increase
the information collection requirements by 2,000 burden hours.
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\13\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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OMB Control Number: 3133-0092.
Title of information collection: Loans to Members and Lines of
Credit to Members, 12 CFR 701.21 and Appendix B to 741.
Estimated number of respondents: 5,236.
Estimated number of responses per respondent: 4.5.
Estimated total annual responses: 23,534.
Estimated burden per response: 1.0.
Estimated total annual burden: 23,584.
The NCUA invites comments on: (a) Whether the proposed collection
of information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information on those who are
to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology; and (e) estimates of capital or
start-up costs and cost of operation, maintenance, and purchase of
services to provide information.
All comments are a matter of public record. Due to the limited in-
house staff, email comments are preferred. Comments regarding the
information collection requirements of this rule should be (1) mailed
to: PRAcomments@ncua.gov with ``OMB No. 3133-0133'' in the subject
line; faxed to (703) 837-2406; or mailed to Dawn Wolfgang, NCUA PRA
Clearance Officer, National Credit Union Administration, 1775 Duke
Street, Suite 6032, Alexandria, VA 22314, and to the (2) Office of
Information and Regulatory Affairs, Office of Management and Budget, at
www.reginfo.gov/public/do/PRAMain. Select ``Currently under 30-day
Review--Open for Public Comments'' or use the search function.
C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, the NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order. This rulemaking will not
have a substantial direct effect on the states, on the connection
between the national government and the states, or on the distribution
of power and responsibilities among the various levels of government.
The NCUA has determined that this proposal does not constitute a policy
that has federalism implications for purposes of the executive order.
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule will not affect family
well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\14\
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\14\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 741
Credit, Credit unions, Share insurance.
By the National Credit Union Administration Board on November
19, 2020.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the Board proposes to
amend 12 CFR part 741 as follows:
PART 741--REQUIREMENTS FOR INSURANCE
0
1. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31
U.S.C. 3717.
0
2. Appendix B to part 741 is revised to read as follows:
[[Page 78274]]
Appendix B to Part 741--Loan Workouts, Nonaccrual Policy, and
Regulatory Reporting of Troubled Debt Restructured Loans
This appendix establishes requirements for the management of
loan workout \1\ arrangements, loan nonaccrual, and regulatory
reporting of troubled debt restructured loans (herein after referred
to as TDR or TDRs). This appendix applies to all federally insured
credit unions.
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\1\ Terms defined in the Glossary will be italicized on their
first use in the body of this =Appendix.
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Under this appendix, TDRs are as defined in generally accepted
accounting principles (GAAP), and the Board does not intend to
change the Financial Accounting Standards Board's (FASB) definition
of TDR in any way through this policy. In addition to existing
agency policy, this appendix sets the NCUA's supervisory
expectations governing loan workout policies and practices and loan
accruals.
Written Loan Workout Policy and Monitoring Requirements \2\
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\2\ For additional guidance on commercial and member business
lending extension, deferral, renewal, and rewrite policies, see
Interagency Policy Statement on Prudent Commercial Real Estate Loan
Workouts (October 30, 2009) transmitted by Letter to Credit Unions
No. 10-CU-07, and available at http://www.ncua.gov.
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For purposes of this appendix, types of workout loans to
borrowers in financial difficulties include re-agings, extensions,
deferrals, renewals, or rewrites. See the Glossary entry on workouts
for further descriptions of each term. Borrower retention programs
or new loans are not encompassed within this policy nor considered
by the Board to be workout loans.
A credit union can use loan workouts to help borrowers overcome
temporary financial difficulties such as loss of job, medical
emergency, or change in family circumstances such as the loss of a
family member. Loan workout arrangements must consider and balance
the best interests of both the borrower and the credit union.
The lack of a sound written policy on workouts can mask the true
performance and past due status of the loan portfolio. Accordingly,
the credit union board and management must adopt and adhere to an
explicit written policy and standards that control the use of loan
workouts, and establish controls to ensure the policy is
consistently applied. The loan workout policy and practices should
be commensurate with a credit union's size and complexity, and must
conform with a credit union's broader risk mitigation strategies.
The policy must define eligibility requirements (that is, under what
conditions the credit union will consider a loan workout), including
establishing limits on the number of times an individual loan may be
modified.\3\ The policy must also ensure credit unions make loan
workout decisions based on a borrower's renewed willingness and
ability to repay the loan. If a credit union restructures a loan
more frequently than once a year or twice in five years, examiners
will have higher expectations for the documentation of the
borrower's renewed willingness and ability to repay the loan. The
NCUA is concerned about restructuring activity that pushes existing
losses into future reporting periods without improving a loan's
collectability. One way a credit union can provide convincing
evidence that multiple restructurings improve collectability is to
validate completed multiple restructurings that substantiate the
claim. Examiners will ask for such validation documentation if a
credit union engages in multiple restructurings of a loan.
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\3\ Broad based credit union programs commonly used as a member
benefit and implemented in a safe and sound manner limited to only
accounts in good standing, such as Skip-a-Pay programs, are not
intended to count toward these limits.
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In addition, the policy must establish sound controls to ensure
loan workout actions are appropriately structured.\4\ The policy
must explicitly prohibit the authorization of additional advances to
finance credit union fees and commissions. The credit union may,
however, make advances to cover third-party fees, such as force-
placed insurance or property taxes. For loan workouts granted, a
credit union must document the determination that the borrower is
willing and able to repay the loan.
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\4\ In developing a written policy, the credit union board and
management may wish to consider similar parameters as those
established in the FFIEC's ``Uniform Retail Credit Classification
and Account Management Policy'' (FFIEC Policy). 65 FR 36903 (June
12, 2000). The FFIEC Policy sets forth specific limitations on the
number of times a loan can be re-aged (for open-end accounts) or
extended, deferred, renewed or rewritten (for closed-end accounts).
NCUA Letter to Credit Unions (LCU) 09-CU-19, ``Evaluating
Residential Real Estate Mortgage Loan Modification Programs,'' also
outlines policy best practices for real estate modifications. Those
best practices remain applicable to real estate loan modifications
(with the exception to the capitalization of credit union fees) but
could be adapted in part by the credit union in their written loan
workout policy for other loans.
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Modifications of loans that result in capitalization of unpaid
interest are appropriate only when a borrower has the ability to
repay the debt. At a minimum, if a FICU's loan modification policy
permits capitalization of unpaid interest, the policy must require:
1. Compliance with all applicable federal and state consumer
protection laws and regulations, including, but not limited to, the
Equal Credit Opportunity Act, the Fair Housing Act, the Truth In
Lending Act, the Real Estate Settlement Procedures Act, the Fair
Credit Reporting Act, and the prohibitions against the use of
unfair, deceptive or abusive acts or practices in the Consumer
Financial Protection Act of 2010.
2. Documentation that reflects a borrower's ability to repay, a
borrower's source(s) of repayment, and when appropriate, compliance
with the FICU's valuation policies at the time the modification is
approved.
3. Providing borrowers with written disclosures that are
accurate, clear and conspicuous and that are consistent with Federal
and state consumer protection laws.
4. Appropriate reporting of loan status for modified loans in
accordance with applicable law and accounting practices. The FICU
shall not report a modified loan as past due if the loan was current
prior to modification and the borrower is complying with the terms
of the modification.
5. Prudent policies and procedures to help borrowers resume
affordable and sustainable repayments that are appropriately
structured, while at the same time minimizing losses to the credit
union. The prudent policies and procedures must consider:
i. Whether the loan modifications are well-designed,
consistently applied, and provide a favorable outcome for borrowers.
ii. The available options for borrowers to repay any missed
payments at the end of their modifications to avoid delinquencies or
other adverse consequences.
6. Appropriate safety and soundness safeguards to prevent the
following:
i. Masking deteriorations in loan portfolio quality and
understating charge-off levels; \5\
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\5\ Refer to NCUA guidance on charge-offs set forth in LCU 03-
CU-01, ``Loan Charge-off Guidance,'' dated January 2003. Examiners
will require that a reasonable written charge-off policy is in place
and that it is consistently applied. Additionally, credit unions
need to adjust historical loss factors when calculating ALLL needs
for pooled loans to account for any loans with protracted charge-off
timeframes (for example, 12 months or more). See discussions on the
latter point in the 2006 Interagency ALLL Policy Statement
transmitted by Accounting Bulletin 06-1 (December 2006). Upon
implementation of ASC 326--Financial Instruments--Credit Losses,
credit unions will use the guidance in Interagency Policy Statement
on Allowances for Credit Losses (May 2020).
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ii. Delaying loss recognition resulting in an understated
allowance for loan and lease losses account or inaccurate loan
valuations;
iii. Overstating net income and net worth (regulatory capital)
levels; and
iv. Circumventing internal controls.
The credit union's risk management framework must include
thresholds, based on aggregate volume of loan workout activity, that
trigger enhanced reporting to the board of directors. This reporting
will enable the credit union's board of directors to evaluate the
effectiveness of the credit union's loan workout program, understand
any implications to the organization's financial condition, and make
any compensating adjustments to the overall business strategy. This
information will also be available to examiners upon request.
To be effective, management information systems need to track
the principal reductions and charge-off history of loans in workout
programs by type of program. Any decision to re-age, extend, defer,
renew, or rewrite a loan, like any other revision to contractual
terms, must be supported by the credit union's management
information systems. Sound management information systems identify
and document any loan that is re-aged, extended, deferred, renewed,
or rewritten, including the frequency and extent of such action.
Documentation normally shows that credit union personnel
communicated with the borrower, the borrower agreed to pay the loan
in full under any new terms, and the borrower has the ability to
repay the loan under any new terms.
[[Page 78275]]
Regulatory Reporting of Workout Loans Including TDR Past Due Status
Credit unions will calculate the past due status of all loans
consistent with loan contract terms, including amendments made to
loan terms through a formal restructure. Credit unions will report
delinquency on the Call Report consistent with this policy.\6\
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\6\ Subsequent Call Reports and accompanying instructions will
reflect this policy, including focusing data collection on loans
meeting the definition of TDR under GAAP. In reporting TDRs on
regulatory reports, the data collections will include all TDRs that
meet the GAAP criteria for TDR reporting, without the application of
materiality threshold exclusions based on scoping or reporting
policy elections of credit union preparers or their auditors. Credit
unions should also refer to ASC Subtopic 310-40 when determining if
a restructuring of a debt constitutes a TDR.
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Loan Nonaccrual Policy
Credit unions must recognize interest income appropriately.
Credit unions must place loans in nonaccrual status when doubt
exists as to full collection of principal and interest or the loan
has been in default for a period of 90 days or more. Upon placing a
loan in nonaccrual, a credit union must reverse or charge-off
previously accrued but uncollected interest. A nonaccrual loan may
be returned to accrual status when a credit union expects repayment
of the remaining contractual principal and interest or it is well
secured and in process of collection.\7\ This policy on loan accrual
is consistent with longstanding credit union industry practice as
implemented by the NCUA over the last several decades. The balance
of the policy relates to commercial and member business loan
workouts and is similar to the policies adopted by the federal
banking agencies \8\ as set forth in the FFIEC Call Report for
banking institutions and its instructions.\9\
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\7\ Placing a loan in nonaccrual status does not change the loan
agreement or the obligations between the borrower and the credit
union. Only the parties can effect a restructuring of the original
loan terms or otherwise settle the debt.
\8\ The federal banking agencies are the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance
Corporation, and the Office of the Comptroller of the Currency.
\9\ FFIEC Report of Condition and Income Forms, Instructions and
Supplemental Instructions, https://www.ffiec.gov/forms041.htm.
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Nonaccrual Status
Credit unions may not accrue interest \10\ on any loan where
principal or interest has been in default for a period of 90 days or
more unless the loan is both ``well secured'' and ``in the process
of collection.'' \11\ For purposes of applying the ``well secured''
and ``in process of collection'' test for nonaccrual status listed
above, the date on which a loan reaches nonaccrual status is
determined by its contractual terms.
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\10\ Nonaccrual of interest also includes the amortization of
deferred net loan fees or costs, or the accretion of discount.
Nonaccrual of interest on loans past due 90 days or more is a
longstanding agency policy and credit union practice.
\11\ A purchased credit impaired loan asset need not be placed
in nonaccrual status as long as the criteria for accrual of income
under the interest method in GAAP is met. Also, the accrual of
interest on workout loans is covered in a later section of this
appendix.
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While a loan is in nonaccrual status, a credit union may treat
some or all of the cash payments received as interest income on a
cash basis provided no doubt exists about the collectability of the
remaining recorded investment in the loan. A credit union must
handle the reversal of previously accrued, but uncollected, interest
applicable to any loan placed in nonaccrual status in accordance
with GAAP.\12\
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\12\ Acceptable accounting treatment includes a reversal of all
previously accrued, but uncollected, interest applicable to loans
placed in a nonaccrual status against appropriate income and balance
sheet accounts. For example, one acceptable method of accounting for
such uncollected interest on a loan placed in nonaccrual status is:
(1) To reverse all of the unpaid interest by crediting the
``accrued interest receivable'' account on the balance sheet,
(2) to reverse the uncollected interest that has been accrued
during the calendar year-to-date by debiting the appropriate
``interest and fee income on loans'' account on the income
statement, and
(3) to reverse any uncollected interest that had been accrued
during previous calendar years by debiting the ``allowance for loan
and lease losses'' account on the balance sheet.
The use of this method presumes that credit union management's
additions to the allowance through charges to the ``provision for
loan and lease losses'' on the income statement have been based on
an evaluation of the collectability of the loan and lease portfolios
and the ``accrued interest receivable'' account.
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Restoration to Accrual Status for All Loans Except Commercial and
Member Business Loan Workouts
A nonaccrual loan may be restored to accrual status when:
Its past due status is less than 90 days and the credit
union expects repayment of the remaining contractual principal and
interest within a reasonable period;
It otherwise becomes both well secured and in the
process of collection; or
The asset is a purchased impaired loan and it meets the
criteria under GAAP for accrual of interest income under the
accretable yield method. See ASC 310-30.
In restoring all loans to accrual status, if the credit union
applied any interest payments received while the loan was in
nonaccrual status to reduce the recorded investment in the loan, the
credit union must not reverse the application of these payments to
the loan's recorded investment (and must not credit interest
income). Likewise, a credit union cannot restore the accrued but
uncollected interest reversed or charged-off at the point the loan
was placed on nonaccrual status to accrual; it can only be
recognized as income if collected in cash or cash equivalents from
the member.
Restoration to Accrual Status on Commercial and Member Business Loan
Workouts \13\
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\13\ This policy is derived from the ``Interagency Policy
Statement on Prudent Commercial Real Estate Loan Workouts'' the NCUA
and the other financial regulators issued on October 30, 2009.
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A formally restructured commercial or member business loan
workout need not be maintained in nonaccrual status, provided the
restructuring and any charge-off taken on the loan are supported by
a current, well-documented credit evaluation of the borrower's
financial condition and prospects for repayment under the revised
terms. Otherwise, the restructured loan must remain in nonaccrual
status.
The credit union's evaluation must include consideration of the
borrower's sustained historical repayment performance for a
reasonable period prior to the date on which the loan is returned to
accrual status. A sustained period of repayment performance is a
minimum of six consecutive payments, and includes timely payments
under the restructured loan's terms of principal and interest in
cash or cash equivalents. In returning the commercial or member
business workout loan to accrual status, a credit union may consider
sustained historical repayment performance for a reasonable time
prior to the restructuring. Such a restructuring must improve the
collectability of the loan in accordance with a reasonable repayment
schedule and does not relieve the credit union from the
responsibility to promptly charge off all identified losses.
The following graph provides an example of a schedule of
repayment performance to demonstrate a determination of six
consecutive payments. If the original loan terms required a monthly
payment of $1,500, and the credit union lowered the borrower's
payment to $1,000 through formal commercial or member business loan
restructure, then based on the first row of the graph, the
``sustained historical repayment performance for a reasonable time
prior to the restructuring'' would encompass five of the pre-workout
consecutive payments that were at least $1,000 (months 1 through 5).
In total, the six consecutive repayment burden would be met by the
first month post workout (month 6).
In the second row, only one of the pre-workout payments would
count toward the six consecutive repayment requirement (month 5),
because it is the first month in which the borrower made a payment
of at least $1,000 after failing to pay at least that amount.
Therefore, the loan would remain on nonaccrual for at least five
post-workout consecutive payments (months 6 through 10) provided the
borrower continues to make payments consistent with the restructured
terms.
[[Page 78276]]
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Pre-workout Post-workout
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Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10
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$1,500 $1,200 $1,200 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000
1,500 1,200 900 875 1,000 1,000 1,000 1,000 1,000 1,000
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After a formal restructure of a commercial or member business
loan, if the restructured loan has been returned to accrual status,
the loan otherwise remains subject to the nonaccrual standards of
this policy. If any interest payments received while the commercial
or member business loan was in nonaccrual status were applied to
reduce the recorded investment in the loan the application of these
payments to the loan's recorded investment must not be reversed (and
interest income must not be credited). Likewise, accrued but
uncollected interest reversed or charged-off at the point the
commercial or member business workout loan was placed on nonaccrual
status cannot be restored to accrual; it can only be recognized as
income if collected in cash or cash equivalents from the member.
The following tables summarize nonaccrual and restoration to
accrual requirements previously discussed:
Table 1--Nonaccrual Criteria
------------------------------------------------------------------------
Additional
Action Condition identified consideration
------------------------------------------------------------------------
Nonaccrual on All Loans..... 90 days or more past See Glossary
due unless loan is definitions for
both well-secured ``well secured''
and in the process and ``in the
of collection; or process of
The loan is collection.''
maintained on the
Cash basis because
there is a
deterioration in
the financial
condition of the
borrower, or for
which payment in
full of principal
or interest is not
expected.
Nonaccrual on Commercial or Continue on See Table 2--Restore
Member Business Loan nonaccrual at to Accrual.
Workouts. workout point and
until restore to
accrual criteria
are met.
------------------------------------------------------------------------
Table 2--Restore to Accrual
------------------------------------------------------------------------
Additional
Action Condition identified consideration
------------------------------------------------------------------------
Restore to Accrual on All When a loan is less See Glossary
Loans except Commercial or than 90 days past definitions for
Member Business Loan due and the credit ``well secured''
Workouts. union expects and ``in the
repayment of the process of
remaining collection.''
contractual Interest payments
principal and received while the
interest within a loan was in
reasonable period, nonaccrual status
or. and applied to
When it otherwise reduce the recorded
becomes both ``well investment in the
secured'' and ``in loan must not be
the process of reversed and income
collection''; or. credited. Likewise,
accrued but
uncollected
interest reversed
or charged-off at
the point the loan
was placed on
nonaccrual status
cannot be restored
to accrual.
The asset is a ....................
purchased impaired
loan and it meets
the criteria under
GAAP (see ASC 310-
30) for accrual of
interest income
under the
accretable yield
method.
Restore to Accrual on Formal restructure The evaluation must
Commercial or Member with a current, include
Business Loan Workouts. well documented consideration of
credit evaluation the borrower's
of the borrower's sustained
financial condition historical
and prospects for repayment
repayment under the performance for a
revised terms. minimum of six
timely consecutive
payments comprised
of principal and
interest. In
returning a loan to
accrual status, a
credit union may
take into account
sustained
historical
repayment
performance for a
reasonable time
prior to the
restructured terms.
Interest payments
received while the
commercial or
member business
loan was in
nonaccrual status
and applied to
reduce the recorded
investment in the
loan must not be
reversed and income
credited.
Accrued but
uncollected
interest reversed
or charged-off at
the point the
commercial or
member business
loan was placed on
nonaccrual status
cannot be restored
to accrual.
------------------------------------------------------------------------
Glossary \14\
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\14\ Terms defined in the Glossary will be italicized on their
first use in the body of this guidance.
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``Capitalization of Interest'' constitutes the addition of
accrued but unpaid interest to the principal balance of a loan.
``Cash Basis'' method of income recognition is set forth in GAAP
and means while a loan is in nonaccrual status, some or all of the
cash interest payments received may be treated as interest income on
a cash basis provided no doubt exists about the collectability of
the remaining recorded investment in the loan.\15\
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\15\ Acceptable accounting practices include: (1) Allocating
contractual interest payments among interest income, reduction of
the recorded investment in the asset, and recovery of prior charge-
offs. If this method is used, the amount of income that is
recognized would be equal to that which would have been accrued on
the loan's remaining recorded investment at the contractual rate;
and, (2) accounting for the contractual interest in its entirety
either as income, reduction of the recorded investment in the asset,
or recovery of prior charge-offs, depending on the condition of the
asset, consistent with its accounting policies for other financial
reporting purposes.
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[[Page 78277]]
``Charge-off'' means a direct reduction (credit) to the carrying
amount of a loan carried at amortized cost resulting from
uncollectability with a corresponding reduction (debit) of the ALLL.
Recoveries of loans previously charged off must be recorded when
received.
``Commercial Loan'' is defined consistent with Section 723.2 of
the NCUA's MEMBER BUSINESS LOANS; COMMERCIAL LENDING Rule, 12 CFR
723.2.
``Generally accepted accounting principles (GAAP)'' means
official pronouncements of the FASB as memorialized in the FASB
Accounting Standards Codification[supreg] as the source of
authoritative principles and standards recognized to be applied in
the preparation of financial statements by federally insured credit
unions in the United States with assets of $10 million or more.
``In the process of collection'' means collection of the loan is
proceeding in due course either: (1) Through legal action, including
judgment enforcement procedures, or (2) in appropriate
circumstances, through collection efforts not involving legal action
which are reasonably expected to result in repayment of the debt or
in its restoration to a current status in the near future, i.e.,
generally within the next 90 days.
``Member Business Loan'' is defined consistent with Section
723.8 of the NCUA's MEMBER BUSINESS LOANS; COMMERCIAL LENDING Rule,
12 CFR 723.8.
``New Loan'' means the terms of the revised loan are at least as
favorable to the credit union (i.e., terms are market-based, and
profit driven) as the terms for comparable loans to other customers
with similar collection risks who are not refinancing or
restructuring a loan with the credit union, and the revisions to the
original debt are more than minor.
``Past Due'' means a loan is determined to be delinquent in
relation to its contractual repayment terms including formal
restructures, and must consider the time value of money. Credit
unions may use the following method to recognize partial payments on
``consumer credit,'' i.e., credit extended to individuals for
household, family, and other personal expenditures, including credit
cards, and loans to individuals secured by their personal residence,
including home equity and home improvement loans. A payment
equivalent to 90 percent or more of the contractual payment may be
considered a full payment in computing past due status.
``Recorded Investment in a Loan'' means the loan balance
adjusted for any unamortized premium or discount and unamortized
loan fees or costs, less any amount previously charged off, plus
recorded accrued interest.
``Troubled Debt Restructuring'' is as defined in GAAP and means
a restructuring in which a credit union, for economic or legal
reasons related to a member borrower's financial difficulties,
grants a concession to the borrower that it would not otherwise
consider.\16\ The restructuring of a loan may include, but is not
necessarily limited to:
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\16\ FASB ASC 310-40, ``Troubled Debt Restructuring by
Creditors.''
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(1) The transfer from the borrower to the credit union of real
estate, receivables from third parties, other assets, or an equity
interest in the borrower in full or partial satisfaction of the
loan,
(2) a modification of the loan terms, such as a reduction of the
stated interest rate, principal, or accrued interest or an extension
of the maturity date at a stated interest rate lower than the
current market rate for new debt with similar risk, or
(3) a combination of the above.
A loan extended or renewed at a stated interest rate equal to
the current market interest rate for new debt with similar risk is
not to be reported as a restructured troubled loan.
``Well secured'' means the loan is collateralized by: (1) A
perfected security interest in, or pledges of, real or personal
property, including securities with an estimable value, less cost to
sell, sufficient to recover the recorded investment in the loan, as
well as a reasonable return on that amount, or (2) by the guarantee
of a financially responsible party.
``Workout Loan'' means a loan to a borrower in financial
difficulty that has been formally restructured so as to be
reasonably assured of repayment (of principal and interest) and of
performance according to its restructured terms. A workout loan
typically involves a re-aging, extension, deferral, renewal, or
rewrite of a loan.\17\ For purposes of this policy statement,
workouts do not include loans made to market rates and terms such as
refinances, borrower retention actions, or new loans.\18\
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\17\ ``Re-Age'' means returning a past due account to current
status without collecting the total amount of principal, interest,
and fees that are contractually due.
\18\ There may be instances where a workout loan is not a TDR
even though the borrower is experiencing financial hardship. For
example, a workout loan would not be a TDR if the fair value of cash
or other assets accepted by a credit union from a borrower in full
satisfaction of its receivable is at least equal to the credit
union's recorded investment in the loan, e.g., due to charge-offs.
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``Extension'' means extending monthly payments on a closed-end
loan and rolling back the maturity by the number of months extended.
The account is shown current upon granting the extension. If
extension fees are assessed, they must be collected at the time of
the extension and not added to the balance of the loan.
``Deferral'' means deferring a contractually due payment on a
closed-end loan without affecting the other terms, including
maturity, of the loan. The account is shown current upon granting
the deferral.
``Renewal'' means underwriting a matured, closed-end loan
generally at its outstanding principal amount and on similar terms.
``Rewrite'' means significantly changing the terms of an
existing loan, including payment amounts, interest rates,
amortization schedules, or its final maturity.
[FR Doc. 2020-25988 Filed 12-3-20; 8:45 am]
BILLING CODE 7535-01-P