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InfoSight Highlight: Loan Workouts and Non-Accrual Policy; Regulatory Reporting of Troubled Debt Restructured Loans
Friday, April 28, 2017 6:55 AM

Lending Policies
Credit unions are required to adopt policies that govern loan workout arrangements and non-accrual practices. A credit union’s written non-accrual standards must include the discontinuance of interest accrual on loans that are past due by 90 days or more and requirements for returning such loans, including MBLs workouts, to accrual status.

To set NCUA’s supervisory expectations and assist credit unions in compliance, appendix to Part 741 thoroughly addresses the loan workout account management and reporting standards that credit unions must implement in order to comply with the rule. It also explains how credit unions report their data collections related to TDRs on Call Reports.

Written Loan Workout Policy and Monitoring Requirements
The credit union’s board and management must adopt and adhere to an explicit written policy and standards that control the use of loan workouts, and establish controls to ensure the policy is consistently applied. The loan workout policy and practices should be commensurate with the credit union’s size and complexity and must be in line with the credit union’s broader risk-mitigation strategies.

The policy must do the following:

  • Define eligibility requirements (i.e., under what conditions the credit union will consider a loan workout), including establishing limits on the number of times an individual loan may be modified. [Note: Broad-based credit union programs commonly used as a member benefit and implemented in a safe and sound manner limited to only accounts in good standing, such as Skip-a-Pay programs, are not intended to count toward these limits.]
  • Ensure the credit union makes loan workout decisions based on the borrower’s renewed willingness and ability to repay the loan.
  • Establish sound controls to ensure that loan workout actions are appropriately structured, including a prohibition against any authorizations of additional advances to finance unpaid interest and credit union fees. The policy may allow a credit union to make advances to cover third-party fees, such as force-placed insurance or property taxes. However, the credit union cannot finance any related commissions it may receive from the third party.
  • Ensure adequate controls and monitoring by the board of directors and management. Decisions to re-age, extend, defer, renew, or rewrite a loan, like any other revision to contractual terms, must be supported by the credit union’s management information systems.
  • Ensure appropriate documentation showing the credit union’s personnel communicated with the borrower, the borrower agreed to pay the loan in full, and the borrower has the ability to repay the loan under the new terms.

If credit unions engage in restructuring activity on a loan that results in restructuring a loan more often than once a year or twice in five years, examiners will have higher expectations for the documentation of the borrower’s renewed willingness and ability to repay the loan. Examiners will ask credit unions to provide evidence that their policy of permitting multiple restructurings improves collectability.

NCUA does not intend for these minimum requirements to be an all-inclusive list.