Federal Agencies Issue Policy Statement on CRE Loan Workouts

The Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the National Credit Union Administration, and the Office of the Comptroller of the Currency have jointly issued a final policy statement on commercial real estate loan accommodations and workouts. The policy statement updates and supersedes the previous guidance on commercial real estate loan workouts issued in 2009. It reinforces and builds on existing supervisory guidance calling for financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress. The 90-page statement includes a section on short-term loan accommodations that was not included in the previous guidance. The statement also addresses recent accounting changes for estimating loan losses and provides examples of how to classify and account for loans affected by workout activity.

The policy statement includes several hypothetical examples of commercial real estate (CRE) loan workout arrangements under a variety of scenarios, with revisions and additions to the examples provided in 2009. The statement also provides updates to the 2009 Statement's Appendix 2, which contains a summary of selected references to relevant supervisory guidance and accounting standards for real estate lending, appraisals, restructured loans, fair value measurement, and regulatory reporting matters. An accommodation, as defined in the statement, 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. The statement aims to ensure that financial institutions work constructively with creditworthy borrowers during times of financial stress, and that the institutions' actions are consistent with safe and sound banking practices.

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