WASHINGTON—Six financial regulatory agencies, including NCUA, have issued a joint statement encouraging financial institutions to work “constructively” with borrowers affected by COVID-19, and have further provided additional information regarding loan modifications.
The agencies said they are urging financial institutions to work with borrowers and will not criticize or punish institutions for doing so in a safe and sound manner, and will further not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs). The joint statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs.
The agencies stated they view prudent loan modification programs offered to financial institution customers/members affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.
The statement reminds institutions that not all modifications of loan terms result in a TDR.
“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 — for example, six months — modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant,” the agencies stated.
The agencies stated their examiners will “exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected, including those considered TDRs. Regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.”