The Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the State Banking Regulators (collectively “Agencies”) jointly issued a statement on March 22, 2020 for financial institutions who are working with borrowers affected by COVID-19 (also known as the coronavirus).
In the statement, the Agencies encouraged financial institutions to work with borrowers who are or may be unable to meet their payment obligations as a result of the effects of COVID-19. In addition, the Agencies explained that they would not criticize institutions for working with borrowers and would not direct institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”) (a restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider). Likewise, the Agencies would not criticize financial institutions that mitigate credit risk through prudent actions consistent with safe and sound practices, which is consistent with the longstanding practice of encouraging financial institutions to assist borrowers in times of natural disaster and other extreme events.
The Agencies explained that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Moreover, the Agencies would presume that any modification programs designed to provide temporary relief for borrowers that are current on existing loans who are affected by COVID-19 are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis would be required for each loan modification in the program.
The Agencies also advised that financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of a deferral.
Finally, the Agencies made clear that if a loan is restructured in accordance with the statement, the loan will continue to be eligible as collateral at the FRB’s discount window based on the usual criteria.
To read the full statement click here.
Questions
Kronick attorneys across all of the firm’s practice groups – Public Agencies, Natural Resources, Labor & Employment, and Business/Healthcare – will continue to provide clients and the community with ongoing updates and advice regarding COVID-19 related issues as developments warrant. Please feel free to contact us for assistance with issues arising from the current health crisis.
Bruce Scheidt
bscheidt@kmtg.com | 916.321.4502
Gabriel Herrera
gherrera@kmtg.com | 916.321.4334
Bret Rossi
brossi@kmtg.com | 916.321.4381