The National Credit Union Administration (NCUA) has forwarded correspondence to credit unions outlining its newly amended capitalization of interest rule.
“For borrowers experiencing financial hardship, a prudently underwritten and appropriately managed loan modification, consistent with safe and sound lending practices, is generally in the long-term best interest of both the borrower and the credit union,” the NCUA letter noted. “Modification options include lowering of loan payments or the interest rate, extending the maturity date, partial principal or interest forgiveness and capitalization of interest.”
The NCUA Board of Directors granted amendment approval in June, with the action becoming effective July 30. The correspondence also detailed consumer protection and credit risk considerations.
“Such modifications may allow a borrower to repay the loan, which helps the borrower and the credit union avoid the costs of default and foreclosure,” the letter stated. “The NCUA continues to encourage credit unions to work with their members who are experiencing financial difficulties due to the COVID-19 pandemic using safe and sound approaches. Therefore, the NCUA will not object to previous loan modifications, including interest capitalization, prior to the effective date of this rule change if such efforts are conducted in a reasonable manner with proper controls and management oversight.”