ALEXANDRIA, Va. (9/30/09)--In Letter to Credit Unions 09-CU-19, National Credit Union Administration (NCUA) Chairman Deborah Matz advised credit unions on how best to handle the “unprecedented levels” of mortgage defaults. Matz encouraged credit unions that originate real estate loans to work with their borrowers to modify their loans, if needed. Potential loan modifications suggested by the NCUA supervisory letter include reducing interest rates, extending the maturity date of the loan and/or offering principal forbearance or forgiveness. Credit unions may also waive late fees or reduce or capitalize past due amounts, taxes, accrued interest, insurance, or fees, the agency recommended. According to NCUA, the objectives of loan modification programs are to help financially distressed members stay in their homes and to minimize default and foreclosure costs for credit unions . The NCUA encourages its examiners to “evaluate the effectiveness” of a credit union’s mortgage modification program and “ensure that the program is not masking delinquency or delaying the timely recognition of loan losses." In a separate Letter to Credit Unions (09-CU-18), NCUA notes that the real estate market continues to affect the credit quality of loans . However, the enclosed report on credit union trends found that the majority of loan growth over the first six months of this year came from the real estate sector. The report also found that while the credit union industry "remains sound," the impact of the financial crisis "continues to have a negative impact on credit union trends." Matz noted the crucial role of proper risk and asset-liability management for credit unions given the difficulties of this environment and she advised credit unions that originate real estate loans to "remain vigilant and enforce sound underwriting practices." For the full NCUA letters, use the resource link.