#Snurlough
By David Park, Regulatory Compliance Counsel, NAFCU
The weather forecasters got it right over the weekend, and the Washington, DC metropolitan area saw its first significant snowfall of the season. It is unofficially being called the Snurlough around these parts because the federal government is in the midst of the longest shutdown in history.
While the unofficial name of the storm seems cute and harmless, there is nothing funny to individuals and families suffering as a result of the shutdown. And last Friday, the NCUA along with other federal agencies encouraged credit unions and other financial institutions to work with consumers affected by the federal government shutdown. The agencies encouraged financial institutions to consider prudent efforts to modify existing loans or extend new credit to assist borrowers affected by the shutdown. The agencies noted that prudent workout arrangements consistent with safe-and-sound lending practices are in the best interests of all parties and that such efforts should not be subject to criticism by examiners.
But credit unions may face limitations because of their internal lending policies. This is the challenge that credit unions face in the context of the government shutdown. NCUA expects that credit unions will administer their loan programs and any potential workouts with furloughed employees in a safe-and-sound manner while also adhering to their internal lending policies. Operationally, credit unions might focus on historic income like a W-2 instead of requiring a current paystub and underwriting credit on the basis of the member’s reasonable expectation of future income once the shutdown ends.
One thing to keep in mind here is NCUA's Interpretive Ruling and Policy Statement on Loan Workouts, Nonaccrual Policy, and Regulatory Reporting of Troubled Debt Restructured Loans (IRPS) set forth in Appendix B to Part 741. The IRPS describes NCUA's requirements for loan workouts and mandates that federally insured credit unions establish written policies and standards that govern loan workouts. For the purposes of the IRPS, a workout loan includes deferring a contractually due payment on a closed-end loan without affecting other loan terms.
Some credit unions have reached out to NAFCU and have advised us about the steps they are taking to help government employees who have been impacted by the federal government shutdown. Those steps include zero percent personal loans, skip-a-pays, waiving withdrawal fees, and amnesty periods for delinquent payments. We have been seeing open-end lines of credit rather than credit card offers, and this may be due to the ability to pay requirements for credit cards set forth in section 1026.51 of Regulation Z.
The agencies’ statement on Friday reminded me of a discussion during a NAFCU webinar held last week on mortgage servicing. The discussion was about short-term loss mitigation options like forbearance or repayment plans under paragraph (c)(2)(iii) of section 1024.41 of Regulation X. Paragraph (c)(2)(iii) permits servicers to offer a short-term forbearance or repayment plan to a borrower even if the servicer does not have a complete loss mitigation application. The official commentary to Regulation X explains that a short-term repayment plan under section 1024.41 requires repayment of all past due amounts and allows for no more than three months of past due payments to be repaid over a period lasting no more than six months. Likewise, a forbearance plan can last no longer than six months.
Promptly after offering a short-term loss mitigation option and the borrower’s acceptance, Regulation X requires that
the servicer must provide the borrower a written notice stating the specific payment terms and duration of the program or plan, that the servicer offered the program or plan based on an evaluation of an incomplete application, that other loss mitigation options may be available, and that the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all loss mitigation options available to the borrower regardless of whether the borrower accepts the program or plan.
12 CFR § 1024.41(c)(2)(iii). The commentary explains that promptly generally means within five days (excluding legal public holidays, Saturdays and Sundays) after offering the short-term loss mitigation option.
There are two things to be aware of here. First, offering a short-term loss mitigation option in connection with an incomplete loss mitigation application does not relieve a servicer from its obligations under section 1024.41 including reviewing applications for completeness and exercising reasonable diligence in completing an incomplete application. Second, there are additional outreach requirements when the end of a short-term forbearance program nears. The commentary indicates that a servicer must contact the borrower to determine if the borrower wishes to complete the loss mitigation application before the end of the forbearance program if the borrower remains delinquent.
And now it’s time for me to go back to shoveling snow.