WASHINGTON—NAFCU and CUNA have each written to NCUA in response to a proposed interagency policy statement on prudent commercial real estate (CRE) loan accommodations and workouts, with concerns over some “meaningful risks” being raised.
If adopted, the policy statement would replace similar guidance from the Federal Financial Institutions Examination Council issued in 2009 and will be the new standard by which NCUA examiners analyze credit unions’ loan modification programs and loan loss calculation and recognition practices.
The policy statement was proposed in conjunction with the Treasury Department, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.
In NAFCU’s letter, Regulatory Affairs Counsel Dale Baker stated that without further guidance the replacement of the 2009 interagency guidance poses “meaningful risks” for the credit union system, particularly for the smallest institutions.
Letter Should be Issued
“If the agencies adopt any version of the proposed statement, NAFCU urges the NCUA to simultaneously issue a Letter to Credit Unions affirming that NCUA examiners shall not criticize credit unions for engaging in prudent CRE loan accommodations and workouts that do not neatly mirror the agencies’ adopted examples,” wrote Baker.
Baker recommended that any version of the proposed interagency statement that is ultimately adopted should “reflect the NCUA’s promulgation of the current expected credit losses methodology as well as more broadly applicable changes to generally accepted accounting principles.”
In addition, Baker urged NCUA to ensure that the other agencies avoid repeating the most obvious defect of the 2009 guidance – failing to consider all the myriad of ways credit unions can prudently serve member business borrowers facing financial challenges.
CUNA: Changes Recommended
In CUNA’s letter, the trade association stated the proposed rule would build on existing guidance on the need for financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress, update existing interagency guidance on commercial real estate loan workouts, and add a new section on short-term loan accommodations.
CUNA noted the proposed statement contains several changes, including:
- A new section on short-term loan accommodations, which CUNA said it supports, as longer-term workouts are often much more complex, and a short-term solution can also be possible. CUNA said it also agrees with the risk management practices and internal controls.
- Information about changes in accounting principles since 2009, including the current expected credit loss (CECL) standard, Troubled Debt Restructuring, and other updates since the policy statement was last updated in 2009
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