NCUA Approves Troubled Debt Restructuring and RegFlex Elimination Rules (Misc News: May 25, 2012)
The NCUA board approved final rules on troubled debt restructurings and extending Regulatory Flexibility and extension of the RegFlex provisions. Also, the board approved a policy statement on removing RegFlex revocations.
The board unanimously approved:
- A final rule and guidance on troubled debt restructurings (TDRs) to facilitate loan modifications and help distressed credit union members remain in their homes;
- A final rule extending existing Regulatory Flexibility (RegFlex) provisions to all federal credit unions and eliminating the RegFlex designation program; and
- A policy statement removing RegFlex revocations from the list of material supervisory determinations made by the Supervisory Review Committee.
The board also received a report on the performance of the National Credit Union Share Insurance Fund and the Temporary Corporate Credit Union Stabilization Fund (Stabilization Fund) for the quarter ending March 31. The NCUSIF equity ratio rose by 2 basis points to 1.32 percent during the quarter. The Stabilization Fund’s net position remained steady.
Troubled Debt Restructuring Final Rule
The board adopted a final TDR rule (Part 741) and loan workout guidance (Part 741, Appendix C).
In response to comments on the proposed rule, the final rule sets no limit on the amount of troubled loans that credit unions can work out with members. The rule also removed unnecessary manual tracking procedures, and will allow credit unions to modify loans without having to immediately classify TDRs as delinquent. Specific changes include:
- Requiring federally insured credit unions to adopt and adhere to written policies that govern loan workout arrangements that assist borrowers (Oct. 1, 2012).
- Allowing credit unions to calculate the past due status of all loans consistent with loan contract terms, including amendments made to loan terms through a formal TDR (June 1, 2012).
- Eliminating the dual and often manual delinquency-tracking burden on credit unions for managing and reporting TDR loans (June 1, 2012).
- Reaffirming current industry practices by requiring credit unions to discontinue interest accrual on loans past due by 90 days or more and to establish requirements for returning such loans to accrual status (Oct. 1, 2012).
NCUA will amend the call report instructions in a manner consistent with the final rule’s implementation dates.
RegFlex Expanded to Cover All Federal Credit Unions
The board approved a final rule (Parts 701, 703, 721, 723, and 742) enabling all federal credit unions to engage in activities permitted by the existing RegFlex rules without the need to first apply for a RegFlex designation. This rule will become effective 30 days after publication in the Federal Register.
Specifically, the final rule allows all federal credit unions to do the following:
- Make charitable contributions to charities of their choosing.
- Accept nonmember deposits, up to the greater of 20 percent of shares or $3 million, from local governmental entities or other credit unions.
- Use a six-year time horizon (instead of three years) to partially occupy unimproved property acquired for future expansion.
- Obtain certain exceptions to constraints on purchasing whole loans from other federally insured credit unions.
- Enter into borrowing/repurchase transactions in which the purchased securities have maturities exceeding the maturity of the borrowing-repurchase agreement, provided the investment value does not exceed net worth and subject to certain constraints.
- Purchase private-label commercial mortgage-related securities, subject to certain net worth constraints and safety and soundness investment criteria.
- Invest in zero-coupon securities, subject to certain net worth and investment maturity limits.
When issuing the proposed RegFlex relief rule, NCUA inadvertently omitted changes removing references to RegFlex in the fidelity bond rule (Part 713). The board therefore issued an interim final rule in conjunction with the final RegFlex rule changes outlined above. The board encourages all interested individuals or groups to submit comments on the interim final rule within 60 days of publication in the Federal Register.
RegFlex Dropped from Supervisory Review Committee Duties
The board issued an Interpretative Ruling and Policy Statement (IRPS 12-1) to change the Guidelines for the Supervisory Review Committee and remove RegFlex revocations from the list of material supervisory determinations federal credit unions can appeal.
In issuing the policy statement, the Board provided a 30-day comment period. The new guidelines become final 90 days following publication in the Federal Register, unless the board withdraws the changes within 60 days after publication.
Click here to link to NCUA Board Summary.