NEWS: Meeting today, the NCUA Board adopted a final rule to let federally insured credit unions (FICUs) capitalize interest – in other words, to make additional advances to finance unpaid interest – in connection with loan workouts and modifications.
Currently, Appendix B to Part 741 of the NCUA regulations requires FICUs to maintain written policies on loan workouts and non-accrual practices. Those policies must prohibit a credit union from capitalizing interest.
The rule will take effect 30 days after it is published in the Federal Register, which should happen in the coming weeks. This link to the current Appendix B will automatically update at that time.
The final rule also establishes 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.
In February, The League wrote in support of the NCUA’s proposal. “The current prohibition is overly burdensome and, in some cases, hampers a FICU’s good-faith efforts to engage in loan workouts with borrowers facing difficulty,” we wrote. “This is especially true during the economic disruption that the COVID-19 pandemic has caused.”