For Immediate Release
January 31, 2012
Agencies Issue Guidance on Junior Lien Loan Loss Allowances
Four federal financial regulatory agencies on Tuesday issued supervisory guidance on allowance for loan and lease losses (ALLL) estimation practices associated with loans and lines of credit secured by junior liens on one- to four-family residential properties.
The agencies issued the guidance to reiterate policy and to remind regulated financial institutions to monitor all credit quality indicators relevant to credit portfolios, including junior liens. Examples of junior liens include second mortgages and home equity lines of credit taken out by mortgage borrowers.
The Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency reiterate key concepts included in generally accepted accounting principles and existing ALLL supervisory guidance related to the ALLL and loss estimation practices. Regulators also remind institutions to follow appropriate risk-management principles in managing junior lien loans and lines of credit.
Interagency Supervisory Guidance
NCUA Accounting Bulletin # 12-1
NCUA is the independent federal agency created by
the U.S. Congress to regulate, charter and supervise
federal credit unions. With the backing of the full
faith and credit of the U.S. Government, NCUA
operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of more than 96
million account holders in all federal credit
unions and the overwhelming majority of
state-chartered credit unions.