Re Aging your Mortgage

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36903Federal Register / Vol. 65, No. 113/ Monday, June 12, 2000/ Notices

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 00–14610 Filed 6–9–00; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL FINANCIAL INSTITUTIONS

EXAMINATION COUNCILUniform Retail Credit Classificationand Account Management Policy

AGENCY: Federal Financial InstitutionsExamination Council.

ACTION: Final notice.

SUMMARY: The Federal FinancialInstitutions Examination Council(FFIEC), on behalf of the Board of Governors of the Federal ReserveSystem (FRB), the Federal DepositInsurance Corporation (FDIC), the Officeof the Comptroller of the Currency

(OCC), and the Office of ThriftSupervision (OTS), collectively referredto as the Agencies, is publishingrevisions to the Uniform Retail CreditClassification and Account ManagementPolicy, to clarify certain provisions,especially regarding the re-aging of open-end accounts and extensions,deferrals, renewals, and rewrites of closed-end loans. The National CreditUnion Administration (NCUA), also amember of FFIEC, does not plan toadopt the Uniform Policy at this time.This Policy is a supervisory policy used

by the Agencies for uniformclassification and treatment of retailcredit loans in financial institutions.

DATES: Any changes to an institution’spolicies and procedures as a result of the Uniform Retail Credit Classificationand Account Management Policy issuedon February 10, 1999, as modified bythese revisions, should be implementedfor reporting in the December 31, 2000,Call Report or Thrift Financial Report,as appropriate.

FOR FURTHER INFORMATION CONTACT:FRB: David Adkins, Supervisory

Financial Analyst, (202) 452–5259, orAnna Lee Hewko, Financial Analyst,

(202) 530–6260, Division of BankingSupervision and Regulation, Board of Governors of the Federal ReserveSystem. For the hearing impaired only,Telecommunication Device for the Deaf (TDD), Diane Jenkins, (202) 452–3544,Board of Governors of the FederalReserve System, 20th and C Streets,N.W., Washington, D.C. 20551.

OCC: Daniel L. Pearson, NationalBank Examiner, (202) 874–5170, CreditRisk Division, or Ron Shimabukuro,Senior Attorney, (202) 874–5090,Legislative and Regulatory Activities

Division, Chief Counsel’s Office, Officeof the Comptroller of the Currency, 250E Street, SW., Washington, DC 20219.

FDIC: James Leitner, ExaminationSpecialist, (202) 898–6790, Division of Supervision, or Michael Phillips,Counsel, (202) 898–3581, Supervisionand Legislation Branch, Legal Division,Federal Deposit Insurance Corporation,

550 17th Street, N.W., Washington, D.C.20429.

OTS: William J. Magrini, SeniorProject Manager, (202) 906–5744, DonnaM. Deale, Manager, Supervision Policy,(202) 906–7488, Supervision Policy, orEllen J. Sazzman, Counsel (Banking andFinance), (202) 906–7133, Regulationsand Legislation Division, Chief Counsel’s Office, Office of ThriftSupervision, 1700 G Street, N.W.,Washington, D.C. 20552.SUPPLEMENTARY INFORMATION:

Background Information

On June 30, 1980, the FRB, FDIC, andOCC adopted the Uniform Policy forClassification of Consumer InstallmentCredit Based on Delinquency Status(1980 policy). The Federal Home LoanBank Board, the predecessor of the OTS,adopted the 1980 policy in 1987. The1980 policy established uniformguidelines for the classification of retailinstallment credit based on delinquencystatus and provided charge-off timeframes for open-end and closed-endcredit.

The Agencies undertook a review of the 1980 policy as part of their reviewof all written policies mandated bySection 303(a) of the Riegle CommunityDevelopment and RegulatoryImprovement Act of 1994. As a result of this review, on February 10, 1999 (64 FR6655), the Agencies issued the UniformRetail Credit Classification and AccountManagement Policy (Uniform Policy). Ingeneral, the Uniform Policy:

• Established a charge-off policy foropen-end credit at 180 daysdelinquency and closed-end credit at120 days delinquency.

• Provided guidance for loansaffected by bankruptcy, fraud, anddeath.

•

Established guidelines for re-aging,extending, deferring, or rewriting pastdue accounts.

• Provided for classification of certaindelinquent residential mortgage andhome equity loans.

• Provided an alternative method of recognizing partial payments.

As issued on February 10, 1999, theUniform Policy was effective for manualadjustments to an institution’s policiesand procedures as of the June 30, 1999,Call Report or Thrift Financial Report,as appropriate. In addition, the Uniform

Policy allowed institutions until theDecember 31, 2000, Reports to makechanges involving computerprogramming resources. In amodification issued on November 23,1999 (64 FR 65712), the implementationdate for manual changes was extendedto the December 31, 2000, Reports.

Following the issuance of the Uniform

Policy, the Agencies received numerousinquiries for clarifications of thestandards contained in the Policy,especially with respect to the re-aging of open-end accounts and extensions,deferrals, renewals, or rewrites of closed-end loans. In response to theseinquiries for clarification, the Agencieshave decided to publish this revisedUniform Policy. In addition to variouseditorial changes, the Agencies havechanged the Uniform Policy to clarifyvarious items in the Uniform Policywith respect to (1) the re-aging of open-end accounts; (2) extensions, deferrals,

renewals, and rewrites of closed-endloans; (3) examiner considerations; and(4) the treatment of specific categories of retail loans.

1. Re-aging of open-end accounts. TheUniform Policy provided that open-endaccounts should not be re-aged morethan once within any twelve-monthperiod and no more than twice withinany five-year period. The Agencies havedecided to clarify the Uniform Policy bystating that institutions may adopt amore conservative re-aging standard(e.g., some institutions allow only onere-aging in the lifetime of an open-endaccount). In addition, this modification

of the Uniform Policy recognizes theimportance of formal workout programsand provides guidance on the handlingof open-end accounts that enter into thistype of program.

Specifically, the Agencies havemodified the Uniform Policy to providethat institutions may re-age an accountafter it enters a workout program,including internal and third-party debtcounseling services, but only afterreceipt of at least three consecutiveminimum monthly payments or theequivalent cumulative amount. Re-agingfor workout program purposes is limited

to once in a five-year period and is inaddition to the once-in-twelve-months/twice-in-five-years limitation. The term‘‘re-age’’ is defined in the document (infootnote 3) to mean ‘‘returning adelinquent, open-end account to currentstatus without collecting the totalamount of principal, interest, and feesthat are contractually due.’’ In theAgencies’ view, managementinformation systems should track theprincipal reductions and charge-off history of loans in workout programs bytype of program.

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36904 Federal Register / Vol. 65, No. 113/ Monday, June 12, 2000/ Notices

1The agencies’ classifications used for retailcredit are Substandard, Doubtful, and Loss. Theseare defined as follows: Substandard: An assetclassified Substandard is protected inadequately bythe current net worth and paying capacity of theobligor, or by the collateral pledged, if any. Assetsso classified must have a well-defined weakness orweaknesses that jeopardize the liquidation of thedebt. They are characterized by the distinctpossibility that the institution will sustain someloss if the deficiencies are not corrected. Doubtful:An asset classified Doubtful has all the weaknessesinherent in one classified Substandard with theadded characteristic that the weaknesses makecollection or liquidation in full, on the basis of currently existing facts, conditions, and values,

highly questionable and improbable. Loss: An asset,or portion thereof, classified Loss is considereduncollectible, and of such little value that itscontinuance on the books is not warranted. Thisclassification does not mean that the asset hasabsolutely no recovery or salvage value; rather, itis not practical or desirable to defer writing off anessentially worthless asset (or portion thereof), eventhough partial recovery may occur in the future.

Although the Board of Governors of the FederalReserve System, Federal Deposit InsuranceCorporation, Office of the Comptroller of theCurrency, and Office of Thrift Supervision do notrequire institutions to adopt identical classificationdefinitions, institutions should classify their assetsusing a system that can be easily reconciled withthe regulatory classification system.

2For operational purposes, whenever a charge-off is necessary under this policy, it should be takenno later than the end of the month in which theapplicable time period elapses. Any full paymentreceived after the 120- or 180-day charge-off threshold, but before month-end charge-off, may beconsidered in determining whether the charge-off remains appropriate.

OTS regulation 12 CFR 560.160(b) allows savingsinstitutions to establish adequate (specific)valuation allowances for assets classified Loss inlieu of charge-offs.

Open-end retail accounts that are placed on afixed repayment schedule should follow the charge-off time frame for closed-end loans.

2. Extensions, deferrals, renewals, and rewrites of closed-end loans. TheAgencies have modified the UniformPolicy to provide that institutionsshould adopt and adhere to explicitstandards that control the use of extensions, deferrals, renewals, andrewrites of closed-end loans. Suchstandards would be based on the

borrower’s willingness and ability torepay the loan and would limit numberand frequency of such treatment of closed-end loans. The Agencies havealso defined the terms ‘‘extension,’’‘‘deferral,’’ ‘‘renewal,’’ and ‘‘rewrite.’’

This modification of the UniformPolicy states that institutions shouldadopt standards that prohibit additionaladvances that finance the unpaidinterest and fees. The Agencies haveadded guidance that comprehensive andeffective risk management, reporting,and internal controls be established andmaintained to support the collection

process and to ensure timely recognitionof losses.3. Examination considerations. The

Agencies have added guidance that anexaminer may classify retail portfolios,or segments thereof, where underwritingstandards are weak and presentunreasonable credit risk and maycriticize account management practicesthat are deficient.

Adoption of the Uniform Policy mayaffect an institution’s timing andmeasurement of probable loan lossesthat have been incurred. As a result of changes the Uniform Policy made to the1980 policy, an institution may need to

adjust its loan loss allowance to reflectany shortening in its time frame forrecording charge-offs. Moreover, a largerallowance may be necessary if aninstitution’s charge-off practices aredifferent than the new guidelines foraccounts of deceased persons andaccounts of borrowers in bankruptcy.

4. Treatment of specific categories of retail loans. These modifications to theUniform Policy clarified the Policy’streatment of various categories of retailloans:

• Regarding retail loans that are dueto be charged off, in lieu of charging off

the entire loan balance, loans with non-real estate collateral may be writtendown to the value of the collateral, lesscost to sell, if repossession of collateralis assured and in process.

• For open- and closed-end loanssecured by one-to four-familyresidential real estate, a currentassessment of value should be made nolater than 180 days past due, and anyoutstanding loan balance in excess of the value of the property, less cost tosell, should be charged off. TheAgencies removed the condition in the

Uniform Policy that such assessmentwould be required when a residential orhome equity loan is 120 days past due.

• Loans in bankruptcy with collateralmay be written down to the value of thecollateral, less cost to sell.

As modified, the Uniform Policy nowreads as follows:

Uniform Retail Credit Classificationand Account Management Policy 1

The Uniform Retail CreditClassification and Account ManagementPolicy establishes standards for theclassification and treatment of retailcredit in financial institutions. Retailcredit consists of open- and closed-endcredit extended to individuals forhousehold, family, and other personalexpenditures, and includes consumerloans and credit cards. For purposes of this policy, retail credit also includesloans to individuals secured by theirpersonal residence, including firstmortgage, home equity, and homeimprovement loans. Because a retailcredit portfolio generally consists of alarge number of relatively small-balanceloans, evaluating the quality of the retailcredit portfolio on a loan-by-loan basisis inefficient and burdensome for theinstitution being examined and forexaminers.

Actual credit losses on individualretail credits should be recorded whenthe institution becomes aware of theloss, but in no case should the charge-off exceed the time frames stated in thispolicy. This policy does not preclude aninstitution from adopting a more

conservative internal policy. Based on

collection experience, when aportfolio’s history reflects high lossesand low recoveries, more conservativestandards are appropriate andnecessary.

The quality of retail credit is bestindicated by the repayment performanceof individual borrowers. Therefore, ingeneral, retail credit should be classified

based on the following criteria:• Open- and closed-end retail loans

past due 90 cumulative days from thecontractual due date should beclassified Substandard.

• Closed-end retail loans that becomepast due 120 cumulative days and open-end retail loans that become past due180 cumulative days from thecontractual due date should beclassified Loss and charged off.2 In lieuof charging off the entire loan balance,loans with non-real estate collateral may

be written down to the value of thecollateral, less cost to sell, if repossession of collateral is assured andin process.

• One- to four-family residential realestate loans and home equity loans thatare past due 90 days or more with loan-to-value ratios greater than 60 percentshould be classified Substandard.Properly secured residential real estateloans with loan-to-value ratios equal toor less than 60 percent are generally notclassified based solely on delinquencystatus. Home equity loans to the same

borrower at the same institution as thesenior mortgage loan with a combinedloan-to-value ratio equal to or less than60 percent need not be classified.

However, home equity loans where theinstitution does not hold the seniormortgage, that are past due 90 days ormore should be classified Substandard,even if the loan-to-value ratio is equalto, or less than, 60 percent.

For open- and closed-end loanssecured by residential real estate, acurrent assessment of value should bemade no later than 180 days past due.Any outstanding loan balance in excessof the value of the property, less cost tosell, should be classified Loss andcharged off.

• Loans in bankruptcy should beclassified Loss and charged off within




36905Federal Register / Vol. 65, No. 113/ Monday, June 12, 2000/ Notices

3These terms are defined as follows. Reage:Returning a delinquent, open-end account tocurrent status without collecting the total amountof principal, interest, and fees that are contractually

due. Extension: Extending monthly payments on aclosed-end loan and rolling back the maturity bythe number of months extended. The account isshown current upon granting the extension. If extension fees are assessed, they should becollected at the time of the extension and not addedto the balance of the loan. Deferral: Deferring acontractually due payment on a closed-end loanwithout affecting the other terms, includingmaturity, of the loan. The account is shown currentupon granting the deferral. Renewal: Underwritinga matured, closed-end loan generally at itsoutstanding principal amount and on similar terms.Rewrite: Underwriting an existing loan bysignificantly changing its terms, including paymentamounts, interest rates, amortization schedules, orits final maturity.

60 days of receipt of notification of filing from the bankruptcy court orwithin the time frames specified in thisclassification policy, whichever isshorter, unless the institution canclearly demonstrate and document thatrepayment is likely to occur. Loans withcollateral may be written down to thevalue of the collateral, less cost to sell.

Any loan balance not charged off should be classified Substandard until the borrower re-establishes the ability andwillingness to repay for a period of atleast six months.

• Fraudulent loans should beclassified Loss and charged off no laterthan 90 days of discovery or within thetime frames adopted in thisclassification policy, whichever isshorter.

• Loans of deceased persons should be classified Loss and charged off whenthe loss is determined or within thetime frames adopted in this

classification policy, whichever isshorter.

Other Considerations for Classification

If an institution can clearly documentthat a past due loan is well secured andin the process of collection, such thatcollection will occur regardless of delinquency status, then the loan neednot be classified. A well-secured loan iscollateralized by a perfected securityinterest in, or pledges of, real orpersonal property, including securitieswith an estimable value, less cost to sell,sufficient to recover the recorded

investment in the loan, as well as areasonable return on that amount. In theprocess of collection means that eithera collection effort or legal action isproceeding and is reasonably expectedto result in recovery of the loan balanceor its restoration to a current status,generally within the next 90 days.

Partial Payments on Open-and Closed-End Credit

Institutions should use one of twomethods to recognize partial payments.A payment equivalent to 90 percent ormore of the contractual payment may beconsidered a full payment in computingpast due status. Alternatively, theinstitution may aggregate payments andgive credit for any partial paymentreceived. For example, if a regularinstallment payment is $300 and the

borrower makes payments of only $150per month for a six-month period, theloan would be $900 ($150 shortagetimes six payments), or three fullmonths past due. An institution mayuse either or both methods in itsportfolio, but may not use both methodssimultaneously with a single loan.

Re-Aging, Extensions, Deferrals,Renewals, and Rewrites 3

Re-aging of open-end accounts, andextensions, deferrals, renewals, andrewrites of closed-end loans can be usedto help borrowers overcome temporaryfinancial difficulties, such as loss of job,medical emergency, or change in family

circumstances like loss of a familymember. A permissive policy on re-agings, extensions, deferrals, renewals,or rewrites can cloud the trueperformance and delinquency status of the portfolio. However, prudent use isacceptable when it is based on arenewed willingness and ability torepay the loan, and when it is structuredand controlled in accordance withsound internal policies.

Management should ensure thatcomprehensive and effective riskmanagement and internal controls areestablished and maintained so that re-

ages, extensions, deferrals, renewals,and rewrites can be adequatelycontrolled and monitored bymanagement and verified by examiners.The decision to re-age, extend, defer,renew, or rewrite a loan, like any othermodification of contractual terms,should be supported in the institution’smanagement information systems.Adequate management informationsystems usually identify and documentany loan that is re-aged, extended,deferred, renewed, or rewritten,including the number of times suchaction has been taken. Documentation

normally shows that the institution’spersonnel communicated with the borrower, the borrower agreed to paythe loan in full, and the borrower hasthe ability to repay the loan. To beeffective, management informationsystems should also monitor and trackthe volume and performance of loansthat have been re-aged, extended,deferred, renewed, or rewritten and/orplaced in a workout program.

Open-End Accounts

Institutions that re-age open-endaccounts should establish a reasonablewritten policy and adhere to it. To beconsidered for re-aging, an accountshould exhibit the following:

• The borrower has demonstrated arenewed willingness and ability to

repay the loan.• The account has existed for at leastnine months.

• The borrower has made at leastthree consecutive minimum monthlypayments or the equivalent cumulativeamount. Funds may not be advanced bythe institution for this purpose.

Open-end accounts should not be re-aged more than once within any twelve-month period and no more than twicewithin any five-year period. Institutionsmay adopt a more conservative re-agingstandard; for example, some institutionsallow only one re-aging in the lifetimeof an open-end account. Additionally,

an over-limit account may be re-aged atits outstanding balance (including theover-limit balance, interest, and fees),provided that no new credit is extendedto the borrower until the balance falls

below the predelinquency credit limit.Institutions may re-age an account

after it enters a workout program,including internal and third-party debtcounseling services, but only afterreceipt of at least three consecutiveminimum monthly payments or theequivalent cumulative amount, asagreed upon under the workout or debtmanagement program. Re-aging for

workout purposes is limited to once ina five-year period and is in addition tothe once in twelve-months/twice in five-year limitation described above. To beeffective, management informationsystems should track the principalreductions and charge-off history of loans in workout programs by type of program.

Closed-End Loans

Institutions should adopt and adhereto explicit standards that control the useof extensions, deferrals, renewals, andrewrites of closed-end loans. The

standards should exhibit the following:• The borrower should show arenewed willingness and ability torepay the loan.

• The standards should limit thenumber and frequency of extensions,deferrals, renewals, and rewrites.

• Additional advances to financeunpaid interest and fees should beprohibited.

Management should ensure thatcomprehensive and effective riskmanagement, reporting, and internalcontrols are established and maintained




36906 Federal Register / Vol. 65, No. 113/ Monday, June 12, 2000/ Notices

to support the collection process and toensure timely recognition of losses. To

be effective, management informationsystems should track the subsequentprincipal reductions and charge-off history of loans that have been grantedan extension, deferral, renewal, orrewrite.

Examination ConsiderationsExaminers should ensure that

institutions adhere to this policy.Nevertheless, there may be instancesthat warrant exceptions to the generalclassification policy. Loans need not beclassified if the institution candocument clearly that repayment willoccur irrespective of delinquency status.Examples might include loans wellsecured by marketable collateral and inthe process of collection, loans forwhich claims are filed against solventestates, and loans supported by validinsurance claims.

The Uniform Classification andAccount Management policy does notpreclude examiners from classifyingindividual retail credit loans thatexhibit signs of credit weaknessregardless of delinquency status.Similarly, an examiner may also classifyretail portfolios, or segments thereof,where underwriting standards are weakand present unreasonable credit risk,and may criticize account managementpractices that are deficient.

In addition to reviewing loanclassifications, the examiner shouldensure that the institution’s allowancefor loan and lease losses provides

adequate coverage for probable lossesinherent in the portfolio. Sound risk andaccount management systems, includinga prudent retail credit lending policy,measures to ensure and monitoradherence to stated policy, and detailedoperating procedures, should also beimplemented. Internal controls should

be in place to ensure that the policy isfollowed. Institutions that lack soundpolicies or fail to implement oreffectively adhere to established policieswill be subject to criticism.

Implementation

This policy should be fullyimplemented for reporting in the

December 31, 2000 Call Report or ThriftFinancial Report, as appropriate.

Dated: June 6, 2000.

Keith J. Todd,

Executive Secretary, Federal Financial Institutions Examination Council.

[FR Doc. 00–14704 Filed 6–9–00; 8:45 am]

BILLING CODE 6210–01–P (25%) 6714–01–P (25%) 6720–

01–P (25%) 4810–33–P (25%)

FEDERAL RESERVE SYSTEM

Change in Bank Control Notices;Acquisitions of Shares of Banks orBank Holding Companies

The notificants listed below haveapplied under the Change in BankControl Act (12 U.S.C. 1817(j)) and§ 225.41 of the Board’s Regulation Y (12CFR 225.41) to acquire a bank or bankholding company. The factors that are

considered in acting on the notices areset forth in paragraph 7 of the Act (12U.S.C. 1817(j)(7)).

The notices are available forimmediate inspection at the FederalReserve Bank indicated. The noticesalso will be available for inspection atthe offices of the Board of Governors.Interested persons may express theirviews in writing to the Reserve Bankindicated for that notice or to the officesof the Board of Governors. Commentsmust be received not later than June 26,2000.

A. Federal Reserve Bank of Kansas

City (D. Michael Manies, Assistant VicePresident) 925 Grand Avenue, KansasCity, Missouri 64198–0001:

1. Robert M. Alexander, Calhan,Colorado; Sean A. Gooding, Cherry HillsVillage, Colorado; Alexander R.Gooding, Cherry Hills Village, Colorado;Leslie A. Melzer, Denver, Colorado;Robert J. Breidenthal, Bonner Springs,Kansas; Arcadia Partners, Ltd.(Dan &Patricia League), Colorado Springs,Colorado; Michael S. League, ColoradoSprings, Colorado; and Joe F. Jenkins,Tonganoxie, Kansas; to acquire votingshares of Financial Services of theRockies, Inc., Colorado Springs,Colorado, and thereby indirectly acquire

voting shares of First National Bank of Colorado Springs, Colorado.

Board of Governors of the Federal ReserveSystem, June 6, 2000.

Robert deV. Frierson,

Associate Secretary of the Board.

[FR Doc. 00–14733 Filed 6–9–00; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RETIREMENT THRIFTINVESTMENT BOARD

Employee Thrift Advisory Council;Open Meeting

In accordance with section 10(a)(2) of the Federal Advisory Committee Act(Pub. L. 92–463), a notice is herebygiven of the following committeemeeting:

NAME: Employee Thrift AdvisoryCouncil.

TIME: 10 a.m.DATE: June 27, 2000.

PLACE: 4th Floor, Conference Room,Federal Retirement Thrift InvestmentBoard, 1250 H Street, NW., Washington,DC

STATUS: Open.

MATTERS TO BE CONSIDERED:1. Approve minutes of the May 19,

1999, meeting.2. Report of the Executive Director on

Thrift Savings Plan status.3. November 15, 1999–January 31,

2000, Thrift Savings Plan Open Season.

4. Legislation.5. New TSP record keeping system/

investment funds.6. New Business.Any interested person may attend,

appear before, or file statements withthe Council. For further informationcontact Elizabeth S. Woodruff,Committee Management Officer, on(202) 942–1660.

Dated: June 6, 2000.

Elizabeth S. Woodruff,

General Counsel, Federal Retirement Thrift Investment Board.

[FR Doc. 00–14739 Filed 6–9–00; 8:45 am]

BILLING CODE 6760–01–M


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