New NCUA Policy Will Keep Members in their Homes
by: Debbie Matz, Chairman, National Credit Union Administration
For over a century, credit unions have striven to help members achieve the American dream. It is, no doubt, extraordinarily difficult when you find it necessary to foreclose on a home and force a family to move out.
So when credit union officials told me that an NCUA policy was forcing them, in some cases, to foreclose on financially troubled members who were requesting lower payments, I committed to change that policy. Board Members Hyland and Fryzel immediately joined this effort.
After careful consideration and collaboration with several top accountants in the credit union industry, the NCUA Board voted unanimously to propose a new policy on Troubled Debt Restructuring (TDR).
Keeping Their Homes
Our new TDR policy is designed to more easily allow credit unions to work with members in order to ensure that members who can no longer afford to make full payments on their original mortgages can keep their homes if they agree to certain modified terms with their credit union.
Among the loan workout options used by credit unions are longer loan terms and lower monthly payments. Similar modifications can be made for other types of loans as well.
Providing Relief to Credit Unions
In addition to benefiting members, the new TDR policy will also provide relief for credit unions. It will allow credit unions to calculate delinquency consistent with loan contract terms on the TDR without having to immediately report the formally restructured loan as “delinquent” – and without having to track each TDR loan’s performance manually for six months.
Manual tracking was certainly an unintended consequence of our previous policy; so I appreciate that credit union officials made the effort to make me aware of this unnecessary burden.
Balancing Risks
It’s important to remember that modified loans are still very high risks for default. In fact, over 16% of outstanding modified loans remain delinquent.
From a regulatory perspective, credit unions must strike the right balance between modifying loan terms to help troubled members continue making payments, while charging off non-performing delinquent loans that are clearly unlikely to be paid back.
Credit unions must also establish responsible policies to manage the interest rate risks that come with extending long-term loans at historically low fixed rates.
Expediting Implementation
The NCUA Board limited the comment period on our new TDR policy to 30 days (instead of the usual 60 days), so it can be implemented as quickly as possible.
This relief measure is part of my on-going Regulatory Modernization Initiative. In the spirit of President Obama’s Executive Order on Regulation and Independent Agencies, when we find that current rules are ineffective or overly burdensome, NCUA will eliminate or streamline those rules, providing that we do not sacrifice safety and soundness.
If there are other rules that warrant modernization, please be sure to let us know.
(For more details on the NCUA Board’s proposed TDR policy and the final interest rate risk rule, click here: http://www.ncua.gov/about/BoardActions/Pages/DraftBoard.aspx.)
Debbie Matz was nominated by President Barack Obama to serve as the eighth board chair of the National Credit Union Administration (NCUA). After confirmation by the U.S. Senate on August 7, 2009, she was sworn in on August 24, 2009. Mrs. Matz is no stranger to NCUA and credit unions having served as a board member at NCUA from January 2002 to October 2005. www.ncua.gov
