Loan Modifications Due to COVID-19 Pandemic: FDIC Answers CARES Act FAQs

May 11, 2020 — Nancy Sabol Frantz, Marissa Levy, Timothy E. Davis & Kristen E. Andreoli - White and Williams
In support of financial institutions and borrowers during the COVID-19 pandemic, the newly enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes a number of provisions permitting lenders to suspend, during a covered period, requirements under U.S. Generally Accepted Accounting Principles (GAAP) with respect to categorizing certain loan modifications as a troubled debt restructuring (TDR) due to COVID-19. In light of the CARES Act, the Federal Deposit Insurance Corporation (FDIC) issued a series of answers to FAQs for financial institutions with respect to loan modifications. The FAQs help guide lenders as well as borrowers as they address pending defaults under existing credit facilities. The FAQs encourage financial institutions to work with borrowers who may be unable to meet their payment obligations due to COVID-19 in several ways: Payment Accommodations Short-term accommodations which modify, extend, suspend or defer repayment terms should be intended to facilitate the borrower’s ability to work through the immediate impact of the virus. According to the FAQs, all loan accommodation programs should ultimately be targeted towards repayment. To that end, the FDIC recommends that financial institutions address deferred or skipped payments by either extending the original maturity date or by making those payments due in a balloon payment at the maturity date of the loan. Reprinted courtesy of White and Williams attorneys Nancy Sabol Frantz, Marissa Levy, Timothy E. Davis and Kristen E. Andreoli Ms. Frantz may be contacted at frantzn@whiteandwilliams.com Ms. Levy may be contacted at levymp@whiteandwilliams.com Mr. Davis may be contacted at davist@whiteandwilliams.com Ms. Andreoli may be contacted at andreolik@whiteandwilliams.com Read the full story...