NCUA issues proposal to allow capitalization of interest

first_img The National Credit Union Administration (NCUA) Board recently issued a proposed rule that would remove the prohibition on capitalization of interest in connection with loan workouts and modifications. NAFCU’s Regulatory Alerton the proposed rule provides all the details you need to better understand the rule and help us provide useful feedback to NCUA as to whether this rule strikes the correct balance of helpful but not too burdensome. The capitalization of interest is the addition of unpaid interest to the principal balance of a loan. This practice is particularly useful in managing loans in deferment or forbearance, which has been regularly offered during the COVID-19 pandemic. Borrowers are still facing financial hardships as a result of the pandemic that has stretched almost ten months in the United States. Access to viable solutions to address deferred interest will help borrowers and credit unions navigate the uncertain new year ahead.NAFCU has advocated for a capitalization of interest allowance several times this year, including two letters written to NCUA in March and September. The letters, as well as NCUA’s rule release, mention operational concerns and the overly burdensome nature of the restriction. This relief will help credit unions and their members to meet loan obligations during the pandemic and beyond.Current StructureUnder the current loan modification structure, the options for borrowers are limited. Many borrowers may have already been delinquent when their deferment period began under the CARES Act or similar hardship modification. A credit union can seek to recapture the deferred interest in a few ways, each of which has its own flaws for both the borrow and the credit union. This is placeholder text continue reading » This post is currently collecting data… ShareShareSharePrintMailGooglePinterestDiggRedditStumbleuponDeliciousBufferTumblr NCUA headquarterslast_img

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