NCUA Board to Consider Proposed Rule on Interest Capitalization

The NCUA board on Thursday is scheduled to consider a proposed rule that would allow credit unions to capitalize interest on consumer mortgage loan modifications.

Credit union trade groups have been urging the agency to allow such capitalization for consumers facing financial hardships as a result of the coronavirus pandemic.

The board will meet at 10 a.m. Eastern time; an audio feed of the meeting will be available on the agency’s website.

In a September letter to NCUA Chairman Rodney Hood, CUNA President/CEO Jim Nussle said the NCUA should make its rules governing the capitalization of loans consistent with the requirements of Fannie Mae, Freddie Mac and other financial regulators.

“This is especially critical as it may take many months for many consumers to become financially healthy given the ongoing COVID-19 crisis,” he wrote.

Debra Schwartz, chairman of NAFCU’s board of directors and president/CEO of Mission Federal Credit Union in San Diego, made a similar argument.

“Permitting credit unions to capitalize interest in a loan modification allows them to work with borrowers in a safe and sound manner and provide an option that will mitigate adverse effects on the borrower,” she said in a September letter.

She asked that the NCUA board consider the proposal as an interim final rule, which would become effective immediately on a temporary basis and still allow comments on whether the rule should be extended.

“Credit unions and their members need a simpler solution to loan modifications that does not create confusion and additional hardship for the borrower and operational challenges for the credit union,” she wrote.

However, the rule is listed on the agenda as a proposed rule, which would allow comment before it is adopted by the board.

At Thursday’s meeting, the board also will receive an update on the state of the Share Insurance Fund. During the last update, the board was told that the agency’s equity ratio had dipped to 1.22% – perilously close to the 1.20% level that would require the board to adopt a restoration plan.

In written testimony to House and Senate committees last week, Hood said the equity ratio stood at 1.32%, but offered no explanation for the increase.

The board also is scheduled to receive a briefing on the state of credit union diversity and the agency’s diversity self-assessment. The board has been considering ways to increase credit union participation in the survey.

And the board will receive a briefing on the agency’s proposed 2020 budget. Earlier this week, the agency released its proposed budget, which would set operating expenses at $315.6 million, a 0.1% decrease.

The agency has scheduled a Dec. 2 briefing on the budget and will accept comments on the proposal until Dec. 11.