WASHINGTON–For the first time in 13 years, an update to the guidance to regulators on commercial real estate loan workouts is being proposed, and it includes a 60-day public comment period.
A proposed statement has been put out by NCUA, the FDIC and the Office of the Comptroller of the Currency.
According to the agencies, the “Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts” would update and supersede the regulators’ 2009 statement.
In addition, the agencies said it is designed to incorporate recent policy guidance on loan accommodations and accounting developments for estimating loan losses, and that it is to include a new section on short-term loan accommodations; and include revisions and additions to examples of CRE loan workouts.
The agencies further added that the proposed statement discusses the importance of “working constructively” with commercial real estate borrowers who are experiencing financial difficulty and would be “appropriate for all supervised financial institutions engaged in CRE lending that apply U.S. generally accepted accounting principles.”
The NCUA, FDIC and OCC stated that while the focus is on commercial real estate loans, the proposal includes general principles that the agencies described as “relevant to a financial institution’s commercial loans that are collateralized by a borrower’s real property or other business assets (e.g., furniture, fixtures, or equipment).”
Two Principles
Moreover, the agencies said they have included two critical principles that are part of the earlier 2019 statement in their new proposal, including:
- Modified loans to borrowers who have the ability to repay their debts according to reasonable terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.
- Financial institutions that implement prudent CRE loan accommodation and workout arrangements after performing a comprehensive review of a borrower’s financial condition are “not to be subject to criticism for engaging in these efforts, even if these arrangements result in modified loans that have weaknesses that result in adverse credit classification.”
Finally, the agencies said other changes in their proposed statement include a new section on short-term loan accommodations; information about changes in accounting principles since 2009, and revisions and additions to examples of CRE loan workouts. The statement also would include updated references to supervisory guidance and would revise language to incorporate current industry terminology, according to the NCUA, FDIC and OCC.