Troubled-debt restructure (TDR) accounting rules and related regulatory reporting requirements have been a source of confusion to credit unions for the past several years. On January 26, 2012, the NCUA Board proposed new rules to create a more logical approach to and greater uniformity of TDR reporting.
The following table includes summaries of NCUA’s proposed preliminary actions accompanied with my comments and observations as to what the actions will mean for credit unions. Their full proposal can be downloaded here.
Proposed NCUA Provision | Mike Sacher’s Comments/Observations |
Allow credit unions to calculate delinquency on TDR loans consistently with loan contract terms, including amendments made to loan terms by a formal restructure. |
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The NCUA Board proposes to further revise the regulatory reporting requirements by eliminating data collection on modified loans and targeting data collection efforts to loans meeting the definition of a TDR under Generally Accepted Accounting Principles (GAAP). |
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NCUA acknowledges that entering into loan modification agreements is often a prudent course of action. It then discusses safety and soundness concerns that lead to the requirement for each federally insured credit union (FICU) to have a written loan workout policy and associated monitoring and controls. This discussion formalizes the existing practice of nonaccrual standards for past due loans. NCUA enumerates numerous policy requirements in the proposed rule. |
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Credit unions are to cease accruing interest on loans at 90 days or more past due. |
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Credit unions are to maintain member business workout loans on nonaccrual status until the credit union receives six consecutive payments under the modified terms. |
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The proposal requires a formally restructured member business loan workout to remain in nonaccrual status until the credit union can document a current credit evaluation of the borrower’s financial condition and prospects for repayment under the revised terms. The valuation must consider the borrower’s sustained historical repayment performance for a reasonable period prior to the date on which the loan is returned to accrual status. |
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The loan workout policy should also include aggregate program limits (for total workout portfolio and each type of workout) as a percentage of net worth. |
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