Interagency Bank Regulators Prepare Commercial Modification Guidance

Washington bank regulators are putting the final touches on administrative guidance to banks on commercial loan work outs. The guidance will be designed to allow banks to modify the terms of loans that are maturing or going into default within the framework of the regulatory agencies.

In testimony last week Federal Reserve Gov. Tarullo said the following in a prepared statement.

We are currently in the final stages of developing interagency guidance on CRE loan restructurings and workouts. This guidance supports balanced and prudent decision making with respect to loan restructuring, accurate and timely recognition of losses and appropriate loan classification. The guidance will reiterate that classification of a loan should not be based solely on a decline in collateral value, in the absence of other adverse factors, and that loan restructurings are often in the best interest of both the financial institution and the borrower. The expectation is that banks should restructure CRE loans in a prudent manner, recognizing the associated credit risk, and not simply renew a loan in an effort to delay loss recognition.

Chairman Bair from the FDIC added the following.

In addition, the federal banking agencies will soon issue guidance on CRE loan workouts. The agencies recognize that lenders and borrowers face challenging credit conditions due to the economic downturn, and are frequently dealing with diminished cash flows and depreciating collateral values. Prudent loan workouts are often in the best interest of financial institutions and borrowers, particularly during difficult economic circumstances and constrained credit availability. This guidance reflects that reality, and supports prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition.

This guidance is expected soon and it will be posted on this blog as soon as it is available to the public.
Register at www.commercialmodification.com if you are a commercial property owner and would like to have a consultation with an experienced commercial mortgage negotiator.