Regulators clear way for certain loan modifications amid pandemic

By Kim Nilsen

Borrowers concerned about meeting loan obligations amid the disruption caused by the coronavirus pandemic got some relief Sunday from a host of regulators who pledged jointly to clear the way for critical loan modifications.

A statement issued by several federal and state banking regulators spelled out agreement to ease certain restrictions that borrowers might normally face when seeking loan modifications.

The agencies pledged not to not criticize lending institutions for working with borrowers and said they will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs).

The statement was issued Sunday evening by the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation (FDIC); the National Credit Union Administration; the Office of the Comptroller of the Currency; the Consumer Financial Protection Bureau; and the Conference of State Bank Supervisors.

“The United States has been operating under a presidentially declared emergency since March 13, 2020, and financial institutions and their customers are affected by COVID-19,” the statement said. “The agencies understand that this unique and evolving situation could pose temporary business disruptions and challenges that affect banks, credit unions, businesses, borrowers, and the economy.”

Regarding accounting for loan modifications, the agencies said they had “confirmed with staff of the Financial Accounting Standards Board (FASB) 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. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. 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.”

FASB issued a statement Sunday expressing support for the approach outlined by the agencies.

“The agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers,” the interagency statement said.

“With some clarity on virus-related loan flexibility, the time for borrowers and their advisers to act is now,” said Jason Brodmerkel of the AICPA’s Accounting Standards Group – Depository and Lending Institutions.

“Borrowers need to act fast and reach out to their institutions to ensure any COVID-19 relief necessary is provided prior to falling out of good standing with the institution,” Brodmerkel said. “In turn, institutions and audit firms should also reach out to their customers and clients to understand their needs during this unprecedented time and help provide relief, when necessary.”

Visit the AICPA Coronavirus Resource Center for news, resources and other information.

— Kim Nilsen, ( is the JofA’s publisher.

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