NAFCU continues to receive questions from credit unions as they navigate the challenges posed by COVID-19 and work to help their members who are adversely impacted. One common question is to what extent loan modifications made during this time will be considered a “troubled debt restructuring” (TDR) under NCUA guidance and generally accepted accounting principles (GAAP).
As a reminder, Appendix B to Part 741 of NCUA’s regulations sets forth the agency’s expectations regarding loan workouts, nonaccrual policies, and regulatory reporting of TDR loans. In this guidance, the definition of TDR is set by the Financial Accounting Standards Board (FASB), whether a specific loan modification is a TDR is generally a question requiring accounting expertise, not legal expertise. Credit unions may need to consult with their accountant on these kinds of issues.
In Appendix B, NCUA stated that a TDR is “a restructuring in which a credit union, for economic or legal reasons related to a member borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.” This can include “a modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate.” In other words, many of the programs credit unions have been considering to assist members affected by COVID-19 seemed to potentially meet the definition of TDR.
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