The Federal Financial Institutions Examination Council (FFIEC) issued a policy statement that supports prudent commercial real estate (CRE) loan workouts. The statement provides guidance for examiners, and for financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values or prolonged delays in selling or renting commercial properties.
The FFIEC includes the Federal Reserve, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FFIEC State Liaison Committee.
The guidance says prudent loan workouts are often in the best interest of financial institutions and borrowers, particularly during difficult economic conditions, and it includes examples of CRE loan workouts.
The statement says that financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications. In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined.
The policy statement is available at tinyurl.com/yhwssce.