ALEXANDRIA, Va. – NCUA has approved so-called shared appreciation loan modifications in which the credit union can share in the appreciation of any property for which it refinances a loan.
The ruling, in a legal opinion issued May 28 to the Michigan CU League, comes as millions of credit union members at risk of foreclosure are seeking to refinance their mortgages.
Under the Michigan league’s proposal, a member would agree to share any future increase in the home’s appreciation with the credit union, in exchange for a reduction of the principal balance of the troubled borrower’s outstanding loan. Shared appreciation would be based on a predetermined calculation and occur upon the sale of the property at a future date.
"Nothing in our lending rules prohibits an FCU from offering a shared appreciation loan modification, assuming it is done in a safe and sound manner. The modification is a matter of contract between an FCU and a troubled borrower," wrote NCUA General Counsel Robert Fenner in a legal opinion letter to David Adams, president of the Michigan league.
"NCUA encourages credit unions to consider reasonable loan modifications, whenever safe and sound, to help keep members in their homes," wrote Fenner. "Shared appreciation agreements could be an effective tool in helping members who are struggling financially to avoid foreclosure."
He noted that shared appreciation agreements could raise tax issues for the member on the forgiveness of any debt.
