Tuesday, May 22, 2012

Form Over Substance...?

Wise Move!

Would like to congratulate the NCUA Board and particularly its Chair Ms. Matz on a long overdue change to the reporting of "troubled debt restructurings"(TDRs) and delinquency on the CU 5300 Quarterly Call Report. Don't look so shocked!!  Give credit where credit is due; and this is a tremendously positive and prudent move for a whole lot of reasons.  The proposed change in reporting requirements is on the NCUA Board Agenda for this Thursday, May 24.

Why is this change important? Chair Matz outlines the benefits clearly in the NCUA Board Action Bulletin "NCUA Supports Regulatory Relief in Loan Modification Proposal", dated Jan. 26, 2012 (see www. ncua.gov). Here's what Chair Matz said:

"When credit union officials told me that an NCUA policy was forcing them, in some cases, to foreclose on troubled members seeking lower payments, I committed to change that policy, and my colleagues immediately joined this effort.  In addition to benefiting members, this new TDR policy will also provide relief for credit unions."

NCUA gets on the bus...finally!
The Bulletin also noted that the TDR change would result "in similar parameters as those previously established in the Federal Financial Institutions Examinations Council (65 FR 36903)".  In other words NCUA is the only federal regulator still using this practice....forcing credit unions, "in some cases, to foreclose on troubled members"...

So  what's the catch?  (Knew you would be suspicious of this new found affection for "the big blue"!) Well, one credit union with which I am familiar (yes, lucky guess!) has already reported TDRs under the new approach offering the following reasons:

  • We agree with the NCUA Chair.
  • Instructions on how to report are already on the NCUA website.
  • Been arguing with "big blue" about this for over two years.
  • TDR reporting has been so insanely complex and manual that it is clear that this rule has been applied inconsistenly by loan type , by CPAs, by NCUA region, and - as now acknowledged - was out of step with the reporting standards established for other financial institutions.
  • The rule has caused much harm to CU members and tarnished the reputation of credit unions in general as reasonable, caring institutions.
  • Past TDR reporting has misled users of Call Report data as to the true, comparable delinquency status of CUs vis-a-vis peers and other institutions.
  • Past TDR reporting adversely affects only a narrow range of CUs which are 1) heavy mortgage lenders, 2) actively worked to keep members in their homes with good results, and 3) actually reported correctly under a poor rule.
  • NCUA staff have been well apprised of this reporting problem for over two years at least and, for whatever reason, did not bring the problem to the attention of the Chair and Board.

So, pick a credit union at random which may have been complaining to NCUA about this issue for over two years; look up its Call Report.  Take a look at what happened to "reported" delinquency when that CU reluctantly (very reluctantly) acquiesced (under a great deal of pressure - y'know, "safety and soundness, etc"!) to this regulatory absurdity in March 2011. Actual delinquency for the CU, under the standards of all other federal regulators, at that time was 1.60%.

Be sure to also look at that randomly selected credit union's actual delinquency at March 2012 -1.69%.  If required to continue to report incorrectly at March 2012, the figure would almost double.  That would continue to mislead a whole lot of people... a point with which the Chair and NCUA Board all agree.. and have since Jan. 26, 2012!  And, on Thursday (the day after tomorrow!) will finally get around to confirming.

Which way should the credit union be permitted to report?  In the "old calculated" way which has been applied inconsistently across credit unions; is not in conformance with GAAP; inordinately and adversely affects only a random slice of credit unions; uses a reporting methodology long abandoned by other regulators, which the Chair says hurts members; and which will be abandoned on Thursday?  Or should the accurate figures be reported?

Who Knows?
The NCUA Board can call it either way.  Which way would you bet the Agency will decide on this request - form or substance?

        What would you do if you were an NCUA Board member?

(Are you listening, at long last?)


Anonymous said...

JIm really a compliment to Matz it has been over two years that we have been arguing this issue to our examiners when they did our exam. And staff were well aware of the problems and did nothing until politics become involved at the NCUA. This agency is a sinking ship if we do not rise up and demand change and more accountability.

Jim Blaine said...

Well, guess we're getting ready to find out!

It's one thing to claim to "listen"; it's quite something else to listen.. and then step up and lead...