IRR, debt restructuring action slated for NCUA meeting

Potentially controversial changes to the National Credit Union Administration's (NCUA) federal share insurance regulations, and a troubled debt restructuring (TDR) proposal, will both be taken up when the NCUA holds its first open meeting of 2012 on Jan. 26.

The NCUA last year proposed amending its federal share insurance regulations to include a requirement that federally insured credit unions have both a written interest rate risk (IRR) policy and an effective interest rate risk management program. The NCUA said it could withhold National Credit Union Share Insurance (NCUSIF) coverage of member accounts for credit unions that did not comply with the proposal if it is adopted. The agency has estimated that about 25% of credit unions, or around 800, would need to develop written IRR policies if its proposal is made final.

The Credit Union National Association (CUNA) has said the NCUA has not demonstrated the need for a new interest rate risk rule, and added that tying compliance to federal share insurance coverage, with the possibly of losing coverage, would be a punitive and unnecessary step. CUNA also suggested that the NCUA develop a more targeted IRR program before it imposes a broader rate-risk proposal, and suggested that the risk management proposal could be issued as guidance rather than as a final rule.

A long awaited proposal that would provide new guidance on reporting and other issues associated with TDR loans is also on the January agenda. TDR loans, which have very specific accounting and reporting requirements, occur when a credit union or other lender grants a concession to the borrower and modifies the terms of the loan based on the borrowers financial situation. The financial statement notes and call report data associated with TDRs are also unique.

Some credit unions have complained that NCUA examiners have sometimes discouraged TDRs, but NCUA Chairman Debbie Matz last year said the agency supports credit union efforts to find creative solutions for members who need loan modifications to stay in their homes. Matz added that the NCUA is seeking solutions that would better assist credit unions which are working diligently to provide members with alternatives to foreclosure.

A third item, an Advanced Notice of Proposed Rulemaking on derivatives, is also on the NCUA open meeting agenda. However, the customary report on the status of the NCUA's Temporary Corporate Credit Union Stabilization Fund (TCCUSF) and NCUSIF will not be delivered, as the agency has decided to present its insurance fund reports on a quarterly basis going forward.