Agencies finalize policy statement on commercial real estate loan accommodations and workouts

The Board of Governors of the Federal Reserve System, FED, has published a press realease to announce that the FED itself and several U.S. banking regulators including the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) have finalized a joint Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts. This policy statement builds upon and supersedes a previous guidance issued in 2009 which was outdated and limited in scope.
According to the FED, the final version is nearly identical to the one proposed and consulted on last year, with some minor changes made for clarification purposes only. The revised statement
– provides guidance to both lenders and regulators‘ supervisory staff on acceptable loan workout arrangements;
– addresses the expectations of regulators as regards risk management of banks on such arrangements;
– issues guidance on regulatory reporting of such arrangements; and
– discusses accounting issues that must be considered in this context (i.e. classification of loans and effects on NPL (non-performing loans) reporting).
Also – as proposed – the new policy statement contains an entirely new section for short-term commercial real estate loan accommodations which may involve deferring payments, making partial payments, or providing other forms of assistance or relief to solvent borrowers facing (temporary) financial challenges. It also provides updated and additional examples of loan classifications with respect to loans under workout arrangements and reflects changes in the accounting methodology to calculate current expected credit losses (CECL) which shall help institutions properly assess and report the impact of commercial real estate loan workouts on their financial statements.
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The guidance will be effective upon publication in the Federal Register. The comments the regulators have received to their corresponding consultations are also included in the final policy statement.