Proposed Rule on Capitalization of Interest Provides Relief Posted by AVCU on 2:33 PM

 The NCUA Board approved a proposed rule that removes the prohibition on the capitalization of interest in connection with loan workouts and modifications.

“At the onset of the COVID-19 pandemic roughly nine months ago, that priority shifted into high gear as I worked with agency staff on COVID-relief measures that would allow credit unions the flexibility to work with borrowers experiencing economic hardship as a result of the pandemic,” Chairman Rodney E. Hood said. “Today’s proposed rule continues to move toward those relief efforts.”

The Board determined that the current prohibition on authorizing additional advances to finance unpaid interest might be overly burdensome and, in some cases, hamper a federally insured credit union’s good-faith efforts to engage in loan workouts with borrowers facing difficulty because of the economic disruption that the COVID-19 event has caused. Advancing interest may avert the need for alternative actions that would be more harmful to borrowers.

The proposed rule would establish 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. The proposed change would apply to workouts of all types of member loans, including commercial and business loans.