Regulators seek to clarify: Loan modifications offered in response to COVID-19 impact are ‘positive, proactive’

Hoping to match up past statements with newly enacted laws, federal financial institution regulators Tuesday issued a joint statement noting that loan modification programs (including troubled debt restructurings [TDRs]) offered to financial institution customers affected by COVID-19 are “positive and proactive actions that can manage or mitigate adverse impacts on borrowers, and lead to improved loan performance and reduced credit risk.”

Issued jointly by the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) – “in consultation with state financial regulators” – the regulators’ statement said they encourage financial institutions to work with borrowers and will not criticize institutions for doing so in a safe and sound manner.

Their statement is intended, the agencies said, to clarify the interaction between their interagency notice issued March 22 and the temporary relief provided by Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law March 27.

The agencies pointed out that Section 4013 allows financial institutions to suspend the requirements to classify certain loan modifications as troubled debt restructurings (TDRs). (The March 22 statement said that regulators would not direct supervised banks, credit unions, and savings associations to automatically categorize loan modifications as TDRs.

In Tuesday’s release, the agencies said their 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 are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers.”

The revised statement also provides supervisory interpretations on past due and nonaccrual regulatory reporting of loan modification programs and regulatory capital.

Agencies issue revised interagency statement on loan modifications by financial institutions working with customers affected by the coronavirus