Loan Modifications Related to COVID-19

On March 22, 2020, the Federal Reserve Board, the FDIC, the National Credit Union Administration, the Office of the Comptroller of Currency, the Consumer Financial Protection Bureau and state banking regulators (collectively, the “agencies”) published an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19.

The agencies understand that COVID-19 could pose temporary business disruptions and challenges that impact banks, businesses, borrowers and the economy. The agencies encourage financial institutions to work prudently with borrowers who are or who may be unable to meet their contractual payment obligations because of the effects of COVID-19. 

Specifically, the agencies recommend that financial institutions view loan modification programs as positive actions that can mitigate adverse effects on borrowers, and the agencies will not criticize such financial institutions and will not automatically categorize such modifications as troubled debt restructurings (“TDRs”). Furthermore, the agencies confirmed with the Financial Accounting Standards Board (FASB) 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 guidance gives financial institutions leeway to evaluate working with impacted borrowers without requiring the institution to categorize it as a TDR. The agencies will continue to provide updates as the situation unfolds. Please find a link to the official statement here.