On March 22, 2020, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau and the state banking regulators issued an interagency statement for financial institutions who are working with borrowers affected by the Coronavirus (COVID-19).
In the statement, the agencies encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. Below are the guidelines for approaching this.
Accounting for Loan Modifications: Agencies have confirmed with staff of The Financial Accounting Standards Board 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 troubled debt restructures (TDRs). Short-term (e.g. six months) modifications, such as payment deferral, fee waivers, extensions of repayment terms or other delays would not be TDRs. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.
Modification programs mandated by the federal or a state government related to COVID-19 requiring all institutions within that state to suspend mortgage payments for a specified period would not be in the scope of ASC-310-40. Examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits affected by COVID-19, including those considered TDRs.
Past-Due Reporting: Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. If a financial institution agrees to a payment deferral, this may result in no contractual payments being past due, and these loans are not considered past due during the period of the deferral.
Nonaccrual Status and Charge-Offs: Loans to stressed borrowers should be reviewed and compared to regulatory guidelines and internal accounting policies to determine if it should be reported as nonaccrual assets in regulatory reports. However, during the short-term arrangements discussed in this statement, these loans generally should not be reported as nonaccrual.
Discount Window Eligibility: Restructured loans due to COVID-19 will continue to be eligible as collateral at the Federal Reserve Board’s discount window based on the usual criteria.
Financial institutions will not be criticized by the regulatory agencies for working with borrowers impacted by COVID-19 as this is in the best interest of the institutions, their borrowers and the economy. For more details, view the statement here. Doeren Mayhew’s financial institution advisors stand ready to help your institution navigate through these times of uncertainty. Contact us for any questions on how this may impact your institutions directly.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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