TDR Rule Draws Praise from Trades, Explanation from Matz
The NCUA achieved a rare feat this week when it released its proposed rule on troubled debt restructuring: favorable reviews from two of its most frequent critics.
Both CUNA and NAFCU said the proposed rule, which the NCUA Board sent out on Thursday for a 30-day comment period, could make life easier for credit unions. Those institutions have long complained about what they see as the agency’s inflexibility on the issue.
The proposal has “the potential to ensure consistent guidance from the agency to its examiners – and help credit unions help their members in this time of need,’’ CUNA President/CEO Bill Cheney said in a statement.
NAFCU President/CEO Fred Becker said his organization “appreciates that the NCUA is removing the hardline requirement that credit unions report TDRs as delinquent on Call Reports after six months.’’
But he criticized the part of the proposal requiring credit unions to have formal written policies regarding loan modifications as potentially burdensome on NAFCU’s members.
In addition to requiring federally insured credit unions to have written loan workout policies, the proposed rule would mandate that they calculate and report troubled debt restructuring loan delinquency based on restructured contract terms.
The rule would also require FICUs to keep member business workout loans in a nonaccrual status until it receives six consecutive payments under the modified terms of the loan.
At Thursday’s meeting, NCUA Chairman Debbie Matz noted that the new rule would provide regulatory relief for credit unions by no longer requiring them to manually track the modified loans.
She said that when writing the rule the agency had to strike a delicate balance between allowing credit unions to help their members while at the same time minimizing the risk to the credit union. She pointed out that more than 16% of outstanding modified loans remain delinquent.