- Source: regulations.gov
Interest in credit loss mitigation and workout processes is increasing, particularly with respect to commercial real estate sectors that may be under stress. Lenders should be prepared for additional scrutiny of their workout and loss mitigation practices, as well as associated classifications of troubled debt restructurings and estimates of CECL and ALLL. Treliant knows credit risk. If your financial services company needs assistance in assessing the impact of the proposed guidance, we can help.
On August 2, 2022, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) (jointly, Agencies) issued a Notice and Request for Comment on Proposed Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts (Proposed Policy Statement). The Proposed Policy Statement is intended to address several aspects of commercial real estate workout processes, including:
- Risk management for short-term and longer-term commercial real estate loan accommodations and workouts;
- Loan classifications for loans with workout accommodations;
- Regulatory, CECL, and incurred loss reporting for modified loans; and
- Valuation of income-producing real estate.
Although the Proposed Policy Statement focuses on commercial real estate loans, the principles incorporated would be relevant to commercial loans supported by other collateral types, including business assets such as fixtures, furnishings, and equipment.
If adopted, the Proposed Policy Statement would update existing regulatory guidance, such as OCC Bulletin 2009-32, to include more recent policy guidance on loan accommodations, such as the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affect by the Coronavirus (Revised) and the Joint Statement on Additional Loan Accommodations Related to COVID-19. The Proposed Policy Statement also incorporates current accounting and financial reporting requirements related to estimating loan losses, including the adoption of Current Expected Credit Losses (CECL) .