Treliant Takeaway…Agencies Finalize Policy Statement on Commercial Real Estate Loan Accommodations and Workouts

Agencies Finalize Policy Statement on Commercial Real Estate Loan Accommodations and Workouts

• Source: fdic.gov

Takeaway:

When it comes to managing problem and troubled loans, Treliant believes that experience and practical knowledge is power. Implementing the right controls, technologies, and processes can give you a current, accurate view of your portfolio and borrowers. Our Credit Solutions practice is comprised of former senior financial services risk executives and regulators who combine their extensive experience, qualifications, and know-how to assist financial institutions as they prepare to meet these regulatory expectations. We provide financial institutions consulting support on credit risk management and governance, stress testing, climate scenario analysis, loan workouts, and advice on portfolio risk-mitigation strategies.

Highlights:

Bank regulators are using experience gained from the 2008-2009 financial crisis to assist lenders address the current crisis in commercial real estate loans. The spotlight turned to commercial property after the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank as investors and regulators sought out strains on the banking system.

The regulators released a policy statement at the end of June that provides banks with a road map detailing how to extend and restructure loans without having to take losses. The new policy statement also adds guidance for banks on how to manage short-term workouts not previously included. Additionally, the policy statement addresses recent accounting changes for estimating loan losses (current expected credit losses) and provides examples of how to classify and account for loans affected by workout activity.

Work out process

The updated policy statement encourages banks to accommodate borrowers if they have a willingness and ability to repay their debts. An accommodation includes an agreement to defer one or more payments, make a partial payment, or provide other assistance or relief to a borrower who is experiencing a financial challenge.