Agencies pledge ‘hands off’ approach as they urge financials to work with borrowers

Federal and state regulators – in urging financial institutions to work with borrowers on the financial impact of the coronavirus crisis – on Sunday pledged a “hands off” policy for banks, credit unions, and savings institutions working with their customers and members affected by the disease, including providing them with information about loan modifications.

In a joint statement, the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corp. (FDIC), Federal Reserve, National Credit Union Administration (NCUA), the Conference of State Bank Supervisors (CSBS, for state-supervised financials), and the Office of the Comptroller of the Currency (OCC) said their examiners will not, in examinations, criticize financial institutions that are working with borrowers “in a safe and sound manner” in response to the virus, which causes a disease known as COVID-19.

In addition, the regulators said, they will not direct supervised banks, credit unions, and savings associations to automatically categorize loan modifications as troubled debt restructurings (TDRs).

The statement also provides supervisory views on past-due and nonaccrual regulatory reporting of loan modification programs.

“The agencies view prudent loan modification programs offered to financial institution customers affected by COVID-19 as positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk,” the agencies said.

Not all modifications of loan terms result in a TDR, the agencies advised. “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,” they said. “This includes short-term – for example, six months – modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.”

In reviewing modifications (including TDRs), the agencies said examiners will exercise judgment and will not automatically adversely risk-rate credits that are affected, including those considered TDRs. “Regardless of whether modifications are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers,” they said.

Agencies provide additional information to encourage financial institutions to work with borrowers affected by COVID-19