Accounting for Troubled Debt Restructuring (TDR)

Carl Roer, CLC Regulatory Comment Committee Member
April 29, 2008 | COMMENTS

Some examiners have been looking closely at an accounting issue in recent exams. Specifically, they are interested in making sure that credit unions are accounting for troubled debt restructurings appropriately. This type of accounting is governed by Financial Accounting Standard 15, as published by the Financial Accounting Standards Board back in June 1977. The standard can be found on the Financial Accounting Standards Board's website at http://www.fasb.org/pdf/aop_FAS15.pdf

A Troubled Debt Restructuring, or TDR, is when a creditor grants a concession to a debtor for economic or legal reasons related to the debtor's financial difficulties. A concession can be as simple as reducing the interest rate on the debt or extending the due date on the loan.

TDR recording can be broken down in to three types of recording: receipt of assets in full satisfaction of the debt, modification of the terms of the loan, or a combination of the two. Examiners may expect credit unions to record all TDRs at the point of restructuring and recognize gains and/or losses in the same period. If the debtor is not yet delinquent and requests a TDR, then it could be recorded as a TDR. If the debtor is already delinquent and then requests a TDR, it could be recorded as delinquent for 6 months then recorded as a TDR after that.

Some examiners are looking at TDRs with a magnifying glass. They want credit unions to be prepared for the upswing in TDRs that is coming due to the drop in the market and as a response to the mortgage crisis. Expect to have your examiners look closely at this issue.

As always, the Lending Council urges credit unions to contact their legal counsel to ensure that procedures related to TDRs are followed in accordance with state and federal regulations.