#128 Expert Vin Vieten on Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts
Download MP3I catch up with Commercial Lending Expert Vin Vieten on the FFIEC's Loan Accommodation Guidance issued late last month. The guidance provides guidance to federal banking regulatory agencies on prudent commercial real estate loan accommodations and workouts. The main points are:Regulators will not criticize financial institutions for engaging in prudent loan workout arrangements with creditworthy borrowers, even if the modified loans are adversely classified due to weaknesses.Modified loans to borrowers who can repay according to reasonable terms will not be adversely classified solely due to declines in collateral value below the loan balance.The guidance covers risk management expectations, loan classification, regulatory reporting, and accounting considerations for commercial real estate loan accommodations and workouts.Short-term accommodations are encouraged as a tool to help borrowers, and the guidance provides principles for prudent risk management of these accommodations.For loan workouts, regulators will evaluate the effectiveness of a financial institution's practices, including having appropriate policies, documentation standards, risk monitoring, and regulatory reporting processes.The guidance provides principles for classification of renewed/restructured loans, problem loans dependent on collateral for repayment, and restructurings with partial charge-offs.The statement emphasizes coordination between the loan workout function and accounting/regulatory reporting staff.Appendices provide loan workout examples, relevant supervisory guidance and rules, valuation concepts, adverse classification definitions, and a summary of current expected credit loss accounting.In summary, the guidance aims to promote consistent supervisory approaches and transparency for commercial real estate loan accommodations and workouts. The goal is to avoid impeding credit availability to sound borrowers while maintaining prudent lending practices.Here Vin's take on why this is A+ guidance.
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I catch up with Commercial Lending Expert Vin Vieten on the FFIEC's Loan Accommodation Guidance issued late last month.
The guidance provides guidance to federal banking regulatory agencies on prudent commercial real estate loan accommodations and workouts. The main points are:
- Regulators will not criticize financial institutions for engaging in prudent loan workout arrangements with creditworthy borrowers, even if the modified loans are adversely classified due to weaknesses.
- Modified loans to borrowers who can repay according to reasonable terms will not be adversely classified solely due to declines in collateral value below the loan balance.
- The guidance covers risk management expectations, loan classification, regulatory reporting, and accounting considerations for commercial real estate loan accommodations and workouts.
- Short-term accommodations are encouraged as a tool to help borrowers, and the guidance provides principles for prudent risk management of these accommodations.
- For loan workouts, regulators will evaluate the effectiveness of a financial institution's practices, including having appropriate policies, documentation standards, risk monitoring, and regulatory reporting processes.
- The guidance provides principles for classification of renewed/restructured loans, problem loans dependent on collateral for repayment, and restructurings with partial charge-offs.
- The statement emphasizes coordination between the loan workout function and accounting/regulatory reporting staff.
- Appendices provide loan workout examples, relevant supervisory guidance and rules, valuation concepts, adverse classification definitions, and a summary of current expected credit loss accounting.
In summary, the guidance aims to promote consistent supervisory approaches and transparency for commercial real estate loan accommodations and workouts. The goal is to avoid impeding credit availability to sound borrowers while maintaining prudent lending practices.
Here Vin's take on why this is A+ guidance.
