Banks and credit unions can modify loans for borrowers affected by the coronavirus crisis without having to classify the concessions as troubled debt restructurings, or TDRs.
Federal and state regulators said in a joint statement that loan modifications would not be considered TDRs if borrowers were current on their payments before being affected by the coronavirus crisis. The agencies also said such moves would not be criticized by examiners.
“The agencies view loan modification programs as positive actions that can mitigate adverse effects on borrowers due to COVID-19,” the agencies said in the statement. “The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID19 related loan modifications as troubled debt restructurings.”
The joint statement, which expanded on previous guidance encouraging financial institutions to work with customers, was released March 22 by the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration and the Conference of State Bank Supervisors.
In the statement, the agencies said they had consulted with the Financial Accounting Standards Board, confirming 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.”
Some acceptable loans modifications include payment deferrals, fee waivers and extensions of repayment terms, according to the joint statement.
In a separate statement Sunday, the FASB confirmed it had consulted with the agencies on this guidance and would continue to work with stakeholders to answer any questions.
The guidance follows a letter last week sent by FDIC Chairman Jelena McWilliams to the FASB. When requesting a delay in the new current expected credit loss standards, she also had asked the FASB to exclude loan modifications related to the coronavirus crisis from the TDR classification.
The regulators’ joint statement further said loans would not have to be designated as past due if the financial institution granted payment deferrals.