Financing of interest in loan workouts, modifications OK under NCUA final rule

A rule that removes the prohibition on federally insured credit unions’ (FICUs) financing of interest in connection with loan workouts and modifications was approved Thursday on a unanimous, 3-0 vote of the National Credit Union Administration (NCUA) Board.

The “capitalization of interest” final rule was adopted with no change from December’s proposal, the agency said, and is similar to the authority to lenders provided by banking regulators.

The final rule, according to the agency’s summary, sets 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 rule also makes technical changes for clarity and to update references.

The rule retains borrower protections, including by continuing to prohibit an FICU from authorizing additional advances to finance credit union fees and commissions. Advances to cover third party fees to protect loan collateral, such as force-placed insurance or property taxes, will continue to be permitted.

The final rule takes effect 30 days after publication in the Federal Register.