Letter: TDR Reporting, Tracking Can Be Improved
I am writing in response to both your article on TDR reporting (Nov. 2, page 1) and Michael Poulos’ response (Nov. 23, page 15). I wanted to offer some opinions on how to improve on a few of the issues imposed by TDR reporting and tracking.
First off, I don't think generically characterizing the restructurings as 60 or 90 days delinquent is going to change the fact that the classifications are misleading to the users of the Call Reports. The TDRs need to be classified using the correct delinquency bucket. With the growing popularity of TDRs and their significant impact on charge offs, it may be prudent to add an entire page to the Call Report. Here they could disclose TDR balances and back out TDRs that have demonstrated satisfactory payment history to come to a true delinquent TDR figure. This page could also include line items to track the new requirements from the Financial Accounting Standards Board's Accounting Standards Update 2010-20 on “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” including TDRs that subsequently defaulted and amount reserved for modified loans in the allowance for loan losses. This solution is not going to ease the burden of tracking these loans, but it is going to add value to members who look at the Call Reports. It's going to show off how great your TDR program has been in keeping members in their houses. I would want to do business with a credit union that is willing to work with its members.
Tracking TDRs manually is a lot bear, but there are a couple of things credit unions can do to alleviate some of the time expended.
The first is to stop tracking the TDRs that you don't have to track. According to the February 2011 webinar hosted by NCUA Board Member Gigi Hyland, the TDR classification can be removed if (1) the modification is done at a market rate, and (2) there is a sustained period of performance on the loan. This won't be the case for most of your modifications. However, if your modification included forgiving some principal or letting your member hold off on making payments for a few months, once that member has gotten back on track and has shown a history of making payments, that loan is at a market rate and should be taken off of your list. If you have to manually track these loans, doing it for 40 loans is a lot easier than doing it for 50.
The second is to stop tracking your TDRs manually. I have seen a few credit unions incorporating new collateral codes into their systems to track these. When a loan is restructured, they change the collateral code. Using their new codes they are able to generate reports that only include TDRs. If tracking these loans has been as burdensome as everyone has said, a little bit of time invested on the front end is going to save loads of time every month.
I think the TDR program is great for both credit unions and their members. I would be saddened to see it fall by the wayside because of complications tracking them.
Dan Price, CPA
Twenty Twenty Analytics
Coral Gables, Fla.