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Phones are ringing; borrowers are panicked and so are their lenders. Borrowers who were profitable, good customers three or four weeks ago are suddenly struggling in the wake coronavirus crisis. They are seeking immediate relief from loan payments and modifications to their loans. Have the regulators provided any guidance?
March 22, 2020 Regulatory Guidance
On Sunday evening, March 22, 2020, the federal financial institution regulatory agencies and the state banking regulators issued SR letter 13-6/CA letter 13-3 “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” providing guidance to encourage financial institutions to work with customers impacted by the Coronavirus. In particular, the guidance provided that certain short term loan modifications for borrowers who are less than 30 days past due on their loans and would not be in default but for the COVID-19 crisis will not automatically be considered Troubled Debt Restructurings (TDRs) thereby subjecting the financial institution to additional regulatory reporting, tracking and accounting requirements. Likely acceptable loan modifications include short-term (e.g. six months or less) modifications such as:
- Payment deferrals,
- Fee waivers,
- Extensions of repayment terms
- Other delays in payment that are insignificant
It should also be noted that:
- Modification or deferral programs mandated by the federal or a state government related to COVID -19 would not be considered TDRs.
- The agencies’ examiners have been directed to exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers.
- The agency and regulator guidance only addresses short-term modifications.
We are all in this together. Stay tuned for more practical advice and please refer to the AGG Coronavirus webpage for additional legal alerts.