CONSUMER & RESIDENTIAL LOAN COLLECTIONS POLICY
I.
Purpose
FEDERAL CREDIT UNION will work with each member in maintaining a good
standing with the Credit Union and to minimize losses to the Credit Union.
Additionally, the Collections Department is charged with ensuring that FEDERAL
CREDIT UNION complies with all state and federal laws, regulations and internal
guidance governing the collection of bad debts and loans.
II.
Policy
It is the policy of FEDERAL CREDIT UNION to use the most prudent and
effective collection practices available to reduce loan loss and the assumption of
risk by the Credit Union. The Collections staff will make every effort to bring
delinquent loans and overdrawn accounts to a current status. It is likewise the
Credit Union's policy to reduce and stabilize consumer credit delinquency and sell
repossessed and foreclosed collateral at the highest possible price while
maintaining efficient recoveries.
The Collections staff is responsible for ensuring timely collection of debts in
accordance with:
 Approved CU Board of Director Policies
 Internal collection procedures
 Uniform Commercial Code
 Federal Credit Union Act
 Fair Debt Collections Practices Act
 Equal Credit Opportunity Act
 Truth-in-Lending Act
 United States Bankruptcy Code
 Soldiers and Sailors Civil Relief Act
 Other laws and regulations as may apply
III.
Communication and Action on Delinquent Debt
A. The Collections department is charged with developing a collections program
that is appropriate for the changing conditions in which the Credit Union
operates. Such a program will address the Credit Union's size, changing
complexity, fields of membership and current economic conditions. Further,
the program should have agreed-upon, measurable goals. The Collections
program will have the following components:
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Prompt action. Early collection efforts enhances the success rate of the
collection;
Repeated contacts. A collection effort should consist of a series of
payment requests, beginning with a gentle reminder and ending with a
firm demand for repayment;
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Varied action. The collection program may combine letters, personal
phone calls and even "home visits" to enhance the collection success;
Prompt follow-up on failed promises. If borrowers do not follow
through with their promise to pay, the Credit Union should follow up
promptly;
Follow through. If the Credit Union does not follow through with its
threatened action, delinquent borrowers may believe they can ignore
the Credit Union; and
Proper paperwork. Although not considered part of a collection
program, staff must properly complete paperwork to reduce the
likelihood of legal action against the Credit Union.
B. After all reasonable attempts have been made to make arrangements with the
member to repay the debt as originally agreed or enter into a new, mutually
agreeable repayment plan, and if the member continues to be in default, the
Credit Union may then exercise its right to collect the full balance of the loan
and ensuing legal costs. Civil action may commence. The Credit Union may
then obtain a judgment, to attach any applicable wages, earnings or assets to
cure the debt.
C. If the Collections staff at any time determines that the collateral on a loan is in
jeopardy or if said loan is in default, they may exercise the right of offset
and/or repossession to cure the default.
IV.
Repossessions
The Credit Union will dispose of repossessed property in a manner as to minimize
loss to the Credit Union. Further collection action against the member may be
initiated as allowed by law. The member may be allowed the opportunity to
correct the deficiency in order for the property to be returned.
V.
Other Payment Arrangements
When a member is using an agency such as Consumer Credit Counseling Services
(CCCS), the agency will notify the Credit Union by sending a proposed payment
arrangement on the member's behalf. The Credit Union will review such proposals
and will determine if the terms are acceptable.
VI.
Bankruptcies
All collection actions and Credit Union contact will cease once proper notice of
bankruptcy is received. The Credit Union will endeavor to preserve the member's
relationship and minimize loss through proper bankruptcy channels. However, if
this is not an option, all legal means will be used to protect the assets of the Credit
Union.
A member who has filed for bankruptcy will not be eligible for any new loans until
the bankruptcy is discharged and as long as they have not caused the Credit Union
a loss. The Credit Union cannot rewrite or add additional funds to a loan included
in bankruptcy, without the Bankruptcy Trustee's approval.
The member will be considered "not in good standing" if they have caused the
Credit Union a loss.
The Collections Director, in consultation with management, has the authority to
accept or reject any repayment proposals offered through bankruptcy court.
VII.
Charge-Offs
The Board of Directors adopts a policy that delegates to Senior Management the
authority to charge off loans. The limit of this authority is an aggregate of $50,000
per primary member account for all loan types. Management is prohibited from
charging off loans for Officials, employees and families of both these groups.
Management should report loans charged off under the delegated authority to the
Board at the next regularly scheduled Directors' meeting. Management will refer
loans not meeting the established criteria in this charge off policy to the Board for
their consideration.
Examples of why a loan may be charged off include, but are not limited to, the
following:
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Non-performing loan more than six months past due without a payment
in the last 90 days;
A delinquent loan that has been turned over to an attorney or collection
agency unless there are extenuating circumstances;
A skip where the Credit Union has had no contact in more than 90 days;
An estimated loan loss, where the Credit Union has repossessed, but not
yet sold, collateral on hand. CU may transfer the loan balance into the
Collateral in Process of Liquidation account and should charge off any
outstanding loan balance in excess of the value of the property, less the
cost of sale;
An estimated loan loss, where CU has foreclosed on, but has not yet sold
the property securing the real estate loan at the fair value of the property.
CU should transfer the loan balance into the Other Real Estate Owned
account and should charge off any loan balance in excess of the value of
the property, less cost of sale;
A loan in bankruptcy within 60 days of receipt of notification of filing
from the bankruptcy court, unless it can be clearly demonstrated and
documented that full repayment is likely to occur. Loans with collateral
may be written down to the value of the collateral, less cost of sale. If the
bankruptcy is a Chapter 11 or 13 and the court lowers the amount that the
borrower must pay, CU may charge off the portion of the debt discharged
by the court;
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A fraudulent loan, no later than 90 days of the discovery or when the loss
is determined;
A loan of a deceased person when all repossessed property is sold, and
there have been no payments or assets by which to make payments,
and/or further delay would be without merit.
The charge off policy is to aid management with its commitment to identify, monitor,
measure and control the risk in the loan portfolio.
VIII.
Quality Control
As part of ongoing quality control, management may develop a "watch list" for
reviewing and tracking loans that meet certain criteria, to ensure that policies and
underwriting, especially for new programs, systems and products are safe and
sound.
FORECLOSURE
I.
Policy Statement
The Board of Directors recognizes that from time to time, the Credit Union may
have to foreclose on a real estate loan (1st and/or 2nd Mortgage or Deed of Trust.)
The following policy, which is consistent with regulations concerning Other Real
Estate Owned (OREOs), is being established to ensure:
A. An appropriate risk assessment for foreclosing and holding of an OREO is
properly performed.
B. Levels of risk are established in relationship to holding an OREO.
C. Proper accounting procedure for the OREO is performed.
D. A strategy for either the liquidation or holding of the OREO is in place.
II.
Responsibility
Senior Management is responsible for developing procedures and processes to
fulfill this foreclosure policy. These processes should address:
A. Workout considerations and pre-foreclosure prevention
B. Documentation in the loan file of steps taken in regard to each individual
foreclosure
C. Monitoring and maintenance of properties in foreclosure and held OREOs
E. Risk evaluation prior to and after foreclosure
E. Marketing and disposition of all OREOs
F. Accounting procedures for OREOs
III.
Definition of OREO
Other Real Estate Owned (OREO) is defined as real estate in which the Credit
Union takes ownership in the process of collecting problem credits. It also includes
certain other real estate owned by the Credit Union that is not currently or planned
to be used as credit union premises in which to conduct business. OREO may
occur through the following:
A. Purchases at sales under judgments, decrees, or mortgage foreclosures when
the property was security for debts previously contracted;
B. Receipt of Deed in Lieu of Conveyance in satisfaction of debts previously
contracted;
C. Acquisition via in-substance foreclosure (when FEDERAL CREDIT UNION
is the impaired loan lender having possession of property;)
D. Any real estate exchanged for foreclosed real estate; or
E. Property acquired for future expansion, if subsequently, the Credit Union
decided against expansion, then the property must immediately be classified as
OREO. Likewise, if a branch is closed and FEDERAL CREDIT UNION no
longer has use for the property, then that real estate would also be classified as
OREO.
IV.
Actions on OREO
It is the responsibility of Senior Management and the Chief Lending Officer to
establish procedures on foreclosed properties that have become Other Real Estate
Owned by the Credit Union. These procedures should include at least the
following:
A. Inspecting and securing each property;
B. Establishing the Fair Market Value of each property;
C. Determining the likelihood and estimate of a projected loss in the sale of the
property;
D. Developing a marketing plan for each property with the purpose of selling it
within 12 months of acquisition. Due to market and economic conditions, a
property might not be able to be sold within said 12 month period. In such
cases, both the continuation of a definitive marketing plan and re-evaluation
annually of the market value of such a property should occur.
E. Working with the accounting department to properly account for expenses
involved with maintaining and selling the property.
F. Ensuring that real estate taxes, hazard insurance, and necessary utilities are
maintained for each property, as well as coordinating proper maintenance (i.e.
winterization, lawn care, or general cleaning.)
V.
Workout Considerations
Troubled Debt Restructure may sometimes be in the best interest of both the Credit
Union and the member. Policy 400-11 details risks of restructuring debt, as well as
other considerations.
VI.
Foreclosure Process
Senior Management should establish procedures for initial evaluation of the
projected financial impact to the Credit Union involved with completing a
foreclosure. The initial evaluation must include a reasonable market evaluation of
the property, maintenance costs, holding costs and selling costs with supporting
documentation.
It is understood and recognized by the Board of Directors that due to adverse
market conditions, a real estate loan that is in a junior lien position (i.e. closed-end
2nd mortgage or HELOC) has a higher loss potential than a real estate loan that is
in 1st lien position. It is further understood that due to adverse market conditions
that in considering a foreclosure of a junior lien it might be necessary to make the
decision not to foreclose on the junior lien and write-off the entire loan. In such
cases, however, the Chief Lending Officer (CLO) will be responsible to seek other
collection means in relationship to the un-foreclosed note.
It is the responsibility of the CLO to monitor the foreclosure process and to update
the Board of Directors concerning the status of foreclosed properties.
VII.
Reporting
Senior Management is responsible to report to the President and the Board of
Directors on a regular basis the status of all OREOs and pending OREOs. This
report should include 1) the status of all OREO properties; and 2) potential loss of
pending and actual OREOs.