Compliance and accounting guidelines
The council whitepaper also provides compliance and accounting suggestions for handling loan modifications, which can be tricky.
“A credit union pursuing a loan modification initiative or program,” it notes, “should consult with its credit union examiner, CPA [certified public accountant], legal counsel, and NCUA to build policy and procedures that protect the credit union and its membership’s collective assets. This is to ensure that loan modification requests are treated fairly and objectively, and when approved, don’t violate the credit union’s practices for safety and soundness.”
Three factors are critical to the successful payment of modified loans. Members must:
- Have the desire and intention to keep the asset or property;
- Cut down on optional lifestyle expenses; and
- Understand, through education provided by the credit union and its financial counseling partner, the short- and long-term implications of defaulting on the loan or modified loan.
“Loan modification is an involved set of services to learn and implement,” notes the whitepaper. “However, credit unions are made up of members not investors, and some of these members are in honest need of assistance from the credit union, based on documented hardship.
“At the same time, credit unions need to retain member loans to stay in business and to thrive, long-term. It’s also vital that they educate members about the difference between banks and credit unions, in terms of interest rates and margins of flexibility, so members understand the reasons why the credit union approves certain loan modifications and not others.”
For more information or to access the white paper, visit cunalendingcouncil.org; select “tools and resources” and “whitepapers.”