Supervisory Guidance on Troubled Debt Restructuring

Dear Board of Directors and Chief Executive Officer:

NCUA is committed to giving you the tools you need to assist borrowers who have fallen behind on their payments.  Our intent is to ensure that NCUA policies allow you to prevent members from defaulting if they are willing to agree to viable loan workout terms with your credit union.

To that end, we have once again reviewed our examination procedures on loan workouts, nonaccrual, and troubled debt restructuring (TDR).  After soliciting feedback from credit union officials and accounting professionals, we have prepared new TDR guidance for NCUA examiners.

This letter provides you with the same TDR guidance we have just shared with our examiners.  The guidance describes in detail how examiners will apply the regulatory improvements which the NCUA Board approved last year.

In May 2012, the NCUA Board revised part 741 of the NCUA Rules and Regulations and added an Appendix C:  Interpretive Ruling and Policy Statement on Loan Workouts and Nonaccrual Policy, and Regulatory Reporting of Troubled Debt Restructured Loans.  These changes removed unnecessary regulatory and reporting challenges for you when working with borrowers who have fallen behind on their payments.

Attached is NCUA Supervisory Letter 13-02 which was recently issued to examiners to guide their review of loan workouts, nonaccrual, and regulatory reporting of TDR loans.  The guidance provides additional clarity and consistency related to the review of loan workout programs in credit unions.

The Supervisory Letter will help you understand your examiner’s focus on specific components of a sound workout program including:

• The revised regulatory reporting requirements for loan workouts;
• What you should address in a workout policy including controls and decision-support systems consistent with the size and scope of your program;
• Key components of a sound information system for loan workouts and TDRs; and
• Appropriate nonaccrual policies and procedures for loan workouts and TDRs.

I encourage you to review the attached supervisory guidance.  It will not only help you understand how your examiner will approach reviewing your loan workout program; it also contains details to help you implement a sound workout program.

If you have any questions related to this letter, please contact NCUA’s Office of Examination and Insurance at 703-518-6360 or EIMail@ncua.gov.