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NCUA Issues Bulletin on Restructuring TDR Loans
Wednesday, October 8, 2014 6:40 AM

The National Credit Union Administration has issued a bulletin adopting a revised regulatory reporting policy for loans that have been modified in a troubled debt restructuring (TDR). The bulletin also provides clarification about the circumstances in which a subsequent restructuring of a TDR loan need no longer be treated as a TDR.

According to NCUA, the bulletin is in response to frequent questions from credit unions about when a loan is no longer treated as a TDR. When a loan has previously been modified in a TDR, the lending institution and the borrower may subsequently enter into another restructuring agreement.

"The facts and circumstances of each subsequent restructuring of a TDR loan should be carefully evaluated to determine the appropriate accounting by the institution under U.S. generally accepted accounting principles," the bulletin reads.

Federal financial regulators will "not object to an institution no longer treating such a loan as a TDR" if:

  • At the time of the subsequent restructuring the borrower is not experiencing financial difficulties;
  • Under the terms of the subsequent restructuring agreement, no concession has been granted by the institution to the borrower;
  • The subsequent restructuring agreement specifies market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics and other terms no less favorable to the institution than those it would offer for such new debt; and
  • The institution's assessment of the borrower's financial condition and prospects for repayment after the restructuring are supported by a "current, well-documented credit evaluation performed at the time of the restructuring."

According to the NCUA, credit unions may choose to apply this guidance to subsequently restructured loans that meet the above conditions. Credit unions also may choose to apply this guidance to loans outstanding as of Sept. 30 for which there has been a previous subsequent restructuring that met the conditions discussed above at the time of the subsequent restructuring. However, prior call reports should not be amended, according to the bulletin.