Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts

Summary:

The Federal Deposit Insurance Corporation (FDIC), along with the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and National Credit Union Administration (NCUA) (collectively, the agencies), in consultation with the Federal Financial Institutions Examination Council State Liaison Committee, are issuing the interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts (Statement). The Statement is a principles based resource for financial institutions to consider when engaging with borrowers experiencing financial difficulties.

Statement of Applicability: The contents of, and material referenced in, this FIL apply to all FDIC-supervised financial institutions.

Highlights:

• In the third quarter of 2022, the agencies, in consultation with the state bank and credit union regulators, published for comment a proposed Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.
• After careful consideration of comments received, the agencies are issuing the Statement that will replace the Policy Statement on Prudent Commercial Real Estate Loan Workouts (2009 Statement) adopted by the agencies and the Federal Financial Institutions Examination Council State Liaison Committee, and the former Office of Thrift Supervision.
• The Statement discusses the importance of working constructively with CRE borrowers experiencing financial difficulty and is appropriate for all supervised financial institutions engaged in CRE lending.
• The Statement addresses sound principles and supervisory expectations with respect to a financial institution’s handling of loan accommodations and workouts on matters including (1) risk management, (2) classification of loans, (3) regulatory reporting, and (4) accounting considerations, and includes updated references to supervisory guidance.
• The agencies recognize that prudent CRE loan accommodations and workouts are often in the best interest of both the financial institution and the borrower. Accordingly, the Statement reaffirms the key principles from the 2009 Statement: (1) financial institutions that implement prudent CRE loan accommodation and workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts, even if these arrangements result in modified loans that have weaknesses that result in adverse classification; and (2) modified loans to borrowers who have the ability to repay their debts according to reasonable terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the outstanding loan balance.
• The Statement also includes the following changes compared to the 2009 Statement: (1) addition of a new section on short-term loan accommodations; (2) information about changes in accounting principles since 2009; and (3) revisions and additions to examples of CRE loan workouts.