NCUA Adopts Policy Supporting CRE Loan Workouts
The NCUA and other financial regulators have adopted a policy statement that aims to support prudent commercial real estate loan workouts.
The policy statement addresses NCUA's position and expectations regarding credit unions' risk management practices for member business loan workout programs and individual member business loan workout arrangements. Among them are risk management practices for renewing and restructuring MBLs should be appropriate for the complexity and nature of the lending activity and consistent with safe and sound lending practices and regulatory requirements.
Other practices are prudent loan workout arrangements should improve the prospects for repayment of principal and interest, and should be supported by a comprehensive analysis of the member-borrower's willingness and ability to repay the loan, an evaluation of support provided by guarantors, and a current assessment of the value of the underlying collateral.
Workout arrangements should also be reported in accordance with NCUA 5300 Call Report instructions, loan loss estimates should comply with generally accepted accounting principles,
Interpretative Ruling and Policy Statement 02-3 Allowance for Loan and Lease Losses Methodologies and Documentation for Federally Insured Credit Unions (May 2002), and
Accounting Bulletin 06-1 (December 2006) Interagency Advisory addressing the ALLL that reiterates key concepts and requirements including GAAP and existing ALLL supervisory guidance. In October 2009, the Federal Financial Institutions Examination Council, which consists of the NCUA, Board of Governors of the Federal Reserve System, FDIC, Office of the Comptroller of the Currency, Office of Thrift Supervision and the State Liaison Committee, released a CRE loan workout policy statement.