The Federal Deposit Insurance Corp., the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency released a new policy statement to assist examiners in evaluating institutions' efforts to renew or restructure loans to creditworthy CRE borrowers. The statement supports prudent commercial real estate loan workouts, stressing that performing loans, including those renewed or restructured on reasonable modified terms, will not be subject to adverse classification solely because the value of the underlying collateral declined.
An excerpt from the 33 page statement:
The regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution's risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan 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 the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified 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 loan balance.
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