Agencies finalize updated statement on CRE loan accommodations

The OCC, FDIC and National Credit Union Administration today issued an updated policy statement regarding accommodations and workouts for commercial real estate loans whose borrowers are experiencing financial difficulty. Among other things, the policy statement—which supersedes a previous statement adopted in 2009—recognizes the recent elimination of accounting for troubled debt restructurings.

The statement also builds on existing supervisory guidance calling for financial institutions to work prudently and constructively with borrowers during times of financial stress, updates interagency supervisor guidance on commercial real estate loan workouts and adds a section on short-term loan accommodations.

Regulators reaffirmed two key principles from the 2009 statement with regard to safety and soundness standards. First, financial institutions that implement prudent CRE loan accommodations and workout arrangements following 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 with weaknesses that result in adverse classification. Second, 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.