The National Credit Union Administration (NCUA) is proposing new rules for troubled debt restructurings that will cover how all federally insured credit unions account for delinquencies, charge-offs, and income related to troubled home mortgages.

The proposal, issued for a 30-day comment period, will require all federally insured credit unions to develop written loan work-out policies that describe eligibility for loan modifications, limits on modifications, and the timely recognition of losses and of non-accruals.

The new policy, which will be formalized in an Interpretative Ruling and Policy Statement, or IRPS, comes as credit unions and all lenders are continuing to be hit by troubled loans and the need to modify or restructure the terms of those loans.

NCUA figures show that the number of modified loans on the books of federally insured credit unions have almost doubled since 2009 to 350,000, with a balance of $13.5 billion at Sept. 30, 2011.
The aim of the proposed policy is to both help troubled credit union mortgagors stay in their homes and limit the risk restructured loans pose to CU servicers.

The proposal will eliminate the current reporting of "modified loans" and replace it with loans falling under a broader definition of troubled debt restructurings defined by generally accepted accounting principles, or GAAP.

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