Federal Agencies ‘Will not Criticize’ Coronavirus Loan Mods

Six federal agencies on Sunday issued a joint statement encouraging financial institutions to “work constructively” with borrowers affected by the coronavirus pandemic and said they “will not criticize” loan modifications made in a “safe and sound” manner.

“The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings,” the statement said (https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200322a1.pdf). “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 statement was issued Sunday at 6:00 p.m. ET by the Board of Governors of the Federal Reserve System; Conference of State Bank Supervisors; Consumer Financial Protection Bureau; Federal Deposit Insurance Corp.; National Credit Union Administration; and the Office of the Comptroller of the Currency.

The statement said 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—for example, six months—modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

“The agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected, including those considered TDRs,” the statement said. “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.”