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NCUA Vice Chairman Kyle S. Hauptman Statement on the Capitalization of Interest in Connection with Loan Workouts and Modifications

June 2021
NCUA Vice Chairman Kyle S. Hauptman Statement on the Capitalization of Interest in Connection with Loan Workouts and Modifications
Kyle Hauptman

NCUA Vice Chairman Kyle S. Hauptman

As Prepared for Delivery on June 24, 2021

Thank you, Chairman Harper. Thanks to you all for your presentation on the capitalization of interest amendment to Part 741, Appendix B. And thank you, Ariel, Alison, and Myra for your work on this as well.

This amendment was proposed for comment just prior to my arrival on the board, but I appreciate the collaboration that occurred across NCUA as well as the comments submitted by stakeholders.

Part 741, Appendix B sets forth requirements regarding loan work out arrangements. Specifically, the appendix currently states that the credit union must have a loan modification policy with controls to ensure the loan workout actions are appropriately structured. It also states, “The policy must provide that in no event, may a credit union authorize additional advances to finance unpaid interest and credit union fees.” I was surprised to learn that credit unions are the only financial institutions that have this prohibition.

I joined the NCUA Board this past December, and at virtually every board meeting since then, we have encouraged credit unions to work with members impacted by the Pandemic. Credit unions didn’t need us to tell them to support their members – they were doing it anyway – but we can give them the flexibility to do it more effectively. And I commend NCUA for putting things like this in the affirmative, given how useful that can be for a credit union’s compliance officer.

At its essence, this proposal is about supporting one of the key things that credit unions do: working with members in times of difficulty.

This amendment gives credit unions parity with banks, but it is also our acknowledgement of the importance of difference between cooperatives and other kinds of lenders.

While the CARES Act provided welcomed mortgage forbearance for borrowers who needed it, it has also resulted in an unprecedented amount of accrued interest for many loans. As the economy heals, and forbearance is no longer needed, many member-owners may be unable to meet the original loan terms. This rule change will provide credit unions a mutually beneficial option to help members-owners stay in their homes.

When a credit union has more tools to work with troubled debt, they help that borrower, but also protect the interests of other members.

As reported in NCUA’s own 2009 supervisory letter, “Evaluating Residential Real Estate Mortgage Loan Modification Programs,” studies by the FDIC and the OCC indicated the loan modification with the best chance of success was lower monthly payments.

It is our expectation that the capitalization of interest is just one of several options as credit unions help distressed borrowers resume affordable and continued payments.

Mr. Chairman, that concludes my remarks.

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