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CUNA: Troubled-debt plan 'step forward' for CUs

WASHINGTON (1/27/12)--The National Credit Union Administration's (NCUA) Troubled Debt Restructuring (TDR) proposal, which was unveiled at Thursday's open board meeting, "can be a very important step forward" for credit unions that are struggling to work with homeowners that cannot pay their mortgage due to financial difficulties, Credit Union National Association (CUNA) President/CEO Bill Cheney said.

TDR loans, which have very specific accounting and reporting requirements, occur when a credit union or other lender grants a concession to a borrower and modifies the terms of a loan based on the borrower's financial situation. The financial statement notes and call report data associated with TDRs are also unique.

Current TDR requirements force credit unions to segregate TDRs and report TDR payments as delinquent until the member has made timely and consecutive payments for six months after the modification. Credit unions are also usually required to manually track such payments.

The NCUA said its TDR proposal would allow credit unions to modify TDR loans without having to immediately classify those loans as delinquent. Also, credit unions would no longer be forced to track each TDR loan's performance manually for six months.

The TDR proposal, according to the agency, would also set consistent standards for the management of loan workout arrangements that assist borrowers, and eliminate confusion between TDRs and other loan modifications. The proposal, the NCUA said, effectively balances "appropriate loan workout programs with potential safety-and-soundness considerations."

NCUA Chairman Debbie Matz said the policy change would benefit both credit union members and credit unions that had, in some cases, been forced to foreclose on financially troubled members that sought lower mortgage payments.

CUNA's Cheney said CUNA appreciated that the NCUA listened to credit union concerns "that call report requirements actually discouraged credit unions from providing TDRs."

"This 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," he added.

The agency will accept public comment on this proposal for 30 days after publication in the Federal Register. Matz said the NCUA has shortened the public comment period "to implement regulatory relief on TDRs as quickly as possible."

CUNA urges the agency to move forward to address TDRs and loan modifications swifty once the 30 day comment period closes.

For more on the proposal, use the resource link.
 
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