Capitalization of Interest in Connection with Loan Workouts and Modifications
|Status:||Proposed rule; COVID response|
The NCUA Board (Board) seeks public comment on a proposed rule to amend its regulations by removing the prohibition on the capitalization of interest in connection with loan workouts and modifications. The Board has determined that the current prohibition on authorizing additional advances to finance unpaid interest may be overly burdensome and, in some cases, hamper a federally insured credit union’s (FICU’s) good-faith efforts to engage in loan workouts with borrowers facing difficulty because of the economic disruption that the COVID-19 pandemic has caused. Advancing interest may avert the need for alternative actions that would be more harmful to borrowers. The proposed rule would establish documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan. The proposed change would apply to workouts of all types of member loans, including commercial and business loans. The Board has also taken this opportunity to make several technical changes to the Appendix to improve its clarity and update certain references. For the convenience of readers, the Board is republishing the Appendix in its entirety so that the changes may be viewed in the context of the full document.
|Date proposed:||Nov. 19, 2020|
|Comments due date:||Feb. 2, 2020|
|Rule compliance date:|
|Related Reg Report item(s):||Eyeing COVID-19 pressures, agency proposes allowing credit unions to include unpaid interest in loan workouts|